Continue to cut production? Energy shortage in Europe aggravates aluminum prices remain strong

Since December last year, the problem of energy shortage in Europe has fermented again, and a number of overseas aluminum mills have cut production, sparking concerns about the tightening of global primary aluminum supply. Ren Aluminum led Shanghai Aluminum to oscillate and rebound, while the continued off-season depletion of domestic social inventories also boosted bulls' sentiment.

It is still possible to expand overseas production reduction.

The main reason for the European energy crisis is that Russia said that in the current cold weather, it needs to actively store natural gas to ensure domestic heating, cut off the supply of natural gas to Europe, and reduce the amount of natural gas it delivers to Europe through the "Yamal-Europe" natural gas pipeline to zero. In essence, the outage may be related to the "Nord Stream 2" pipeline project, and the geopolitics of Europe and Russia have aggravated the problem of energy shortage in Europe. According to SMM statistics, the current production capacity of electrolytic aluminum in Western Europe is about 5 million tons, accounting for 6% of the world's total production capacity. At the end of November last year, the annualized production capacity of electrolytic aluminum in Western Europe was about 3.26 million tons, with an average operating rate of 65.2%. The overall operating rate was at a low level during the year. At present, Europe's major aluminum smelters have reduced production capacity by about 842000 tons due to energy problems, accounting for 1.1 per cent of the global electrolytic aluminum production capacity. If the problem of high electricity prices persists, the global primary aluminum supply will face the risk of further contraction, requiring continuous attention to the impact of geopolitical problems between Russia and European countries on energy prices.

The margin of domestic supply is loosening.

In terms of supply, Yunnan, Inner Mongolia and other places continue to resume production slowly. At present, Yunnan's production capacity has recovered to about 300000 tons. At the same time, with the recovery of smelting profits and the marginal relaxation of the double carbon policy, the scope of resumption of production has been gradually expanded to Shanxi, Guangxi and other places. Operating capacity continues to rise slightly. By the beginning of January 2022, the domestic electrolytic aluminum production capacity was 37.695 million tons, and the completed production capacity was 43.774 million tons. The national operating rate of electrolytic aluminum enterprises was 86.1 percent, and the production capacity was expected to continue to increase slightly in January. On the demand side, the market is expected to improve demand after the year, but at present, aluminum ingots and aluminum bars continue to decline out of storage, aluminum bar inventory continues to accumulate, aluminum bar processing fees fall back to a low of 180 yuan / ton, showing the overall domestic characteristics of marginal relaxation of supply and weakening demand. At present, domestic social stocks have continued to fall back from the previous high of one million tons to 752000 tons, and the persistence and extent of de-stocking in the off-season have exceeded market expectations, mainly due to the re-outbreak of the domestic epidemic. Goods sent from Xinjiang, Gansu and other places to East China are stranded on the way, and the goods are on the way. It is expected that with the approach of the Spring Festival, the tiring turning point is coming.

Future forecast

In the short term, energy problems remain in Europe, while domestic inventories continue to decline to low levels to support aluminum prices. The short-term market may continue to trade overseas logic, aluminum prices are expected to maintain strong volatility, but the height is still subject to demand, it is not recommended to catch up under the loose marginal pattern of domestic supply and demand, and pay attention to the persistence of the energy crisis. at the same time, pay attention to inventory changes and the possibility of domestic resumption of production.