In the first 10 months of 2021, many commodity prices "rose sharply" due to the dual control of energy consumption. After October, due to the implementation of the coal supply policy, many commodity production capacity was restored, and their prices began to fall sharply, as did aluminium. However, unlike other commodities, aluminium prices have strengthened again recently after falling, and London aluminium prices have reached their highest level since 2008.

So what are the factors behind the continued rise in aluminum prices?

In essence, the rise and fall of commodity prices is closely related to supply and demand. This round of aluminum prices reached a decade-high high, mainly due to limited supply, higher costs, and no significant reduction in demand.

Short-term epidemic impact + long-term energy consumption double control, resulting in aluminum production reduction

In the short term, production has been cut both at home and abroad.

Overseas, the sharp rise in natural gas prices in Europe has led to soaring electricity costs since the second half of 2021, and a number of zinc and aluminum smelters have shut down some of their production capacity because of high electricity costs. According to SMM statistics, by the end of January 2022, the production capacity of electrolytic aluminum stopped in Europe has exceeded 800000 tons per year, accounting for about 1% of the global electrolytic aluminum production capacity. If natural gas prices remain high, European aluminum companies may have further production cuts.

Domestically, because electrolytic aluminum is a high energy consumption enterprise, its production capacity is mainly concentrated in areas with energy advantages. at present, areas rich in coal resources, such as Shandong, Xinjiang and Inner Mongolia, are still the main areas of electrolytic aluminum production in China. By the end of 2021, the combined production capacity of the above three places accounted for 47% of the country's total production capacity.

Recently, due to the impact of the epidemic in Baise, Guangxi, the aluminum industry has reduced production. According to SMM data, the completed production capacity of electrolytic aluminum in Guangxi province is about 2.815 million tons, of which the completed production capacity of electrolytic aluminum in Baise region of Guangxi is 2.315 million tons, accounting for 82.2% of the total production capacity. Due to electricity and other reasons, the operating rate of electrolytic aluminum in the province has been insufficient. By the end of January, the operating capacity of electrolytic aluminum in Guangxi was about 1.98 million tons, of which 1.73 million tons were involved in Baise. By the beginning of 2022, Guangxi Province was the third largest alumina production province in China, with a total capacity of 12.7 million tons per year, accounting for 13.5% of the total domestic production capacity. Among them, five alumina enterprises in Baise have a total production capacity of 9.7 million tons, accounting for 76.4% of the total production capacity of Guangxi Province.

In the medium and long term, the aluminum industry itself is a high energy consumption industry, which is obviously affected by the double control of energy consumption.

In the long run, aluminum prices will remain high.

In October, the National Development and Reform Commission issued a notice on matters related to organizing Electroweb enterprises to purchase electricity for them, in which high energy consumption enterprises need to purchase electricity at 1.5 times the price, as well as pay transmission and distribution prices and government funds. According to the electricity price of Shandong purchasing agent, the electricity price of high energy-consuming enterprises is basically more than 8 Mao / kWh.

According to the research on the development of Suotong, the theoretical power consumption of aluminum electrolysis is 6320 kWh / ton. however, according to the relevant statistics, the electric energy utilization rate of aluminum electrolysis is only 40%, 50%, and more than 50% of the electricity is wasted in various forms. More than 65% of the 50% is lost through upper heat loss (slotting, slotting, slag, etc.). In developed countries, the average is about 13320 degrees per ton of aluminum, and the average domestic power consumption is about 13543 degrees per ton of aluminum.

This also means that for every 0.10 yuan increase in electricity price, the production cost of per ton of aluminum will rise by 1330 yuan. With the gradual implementation of the electric power purchasing policy, the cost of electrolytic aluminum enterprises will remain high.

On the other hand, the price of green electricity continues to rise. The National Development and Reform Commission issued the implementation Plan for promoting Green consumption on January 21, and the guidance on speeding up the Construction of a National Unified electricity Market system on January 28, and recently issued opinions on improving the institutional mechanisms and policies and measures for the green and low-carbon transformation of energy. Among them, it makes policy guidance on the relationship between green power, energy use right and carbon tax. With the binding of carbon tax and green power, green power premium will exist for a long time. Although green power is not affected by the double control of energy consumption, the cost side will continue to be under pressure.

Rising costs will restrain aluminum production capacity, but it can also effectively eliminate backward production capacity and force the industry to upgrade production capacity. However, as the new capacity has not yet been completed and put into production, the supply of aluminum will continue to decrease and prices will remain relatively high.

The demand of the real estate industry may decline, and the expansion of new energy fields will be a supplement.

Aluminum as the most widely used non-ferrous metal, its terminal demand is relatively scattered. In 2020, the construction, real estate and transportation industries accounted for 29% and 26% of the aluminum demand respectively, followed by cable, packaging, machinery and consumer goods.

Building real estate is the largest consumption field of aluminum, aluminum alloy is widely used in building engineering structures and architectural decoration, such as door and window frames, curtain walls, ceilings and partitions and so on. The development of the construction market is closely related to the real estate industry, and relatively more aluminum is used in the stage of housing completion, and there is a strong correlation between the growth rate of aluminum consumption and the growth rate of completed area.

Since 2021, the acceleration of project carry-over by China's real estate enterprises has led to a rapid growth of completed area. From January to September, the completed area of real estate development enterprises across the country increased by 23.4% to 510.13 million square meters compared with the same period last year, which has a great pulling effect on aluminum consumption. In addition, due to the strong willingness of housing enterprises to speed up the construction of stock projects to speed up repayment, the area under construction increased by 7.9% over the same period last year.

However, in recent years, "housing speculation", and real estate enterprises under the pressure of the "three red lines", tend to be cautious, coupled with the continued tightening of financing, real estate investment growth is facing downward pressure, aluminum demand will be affected to a certain extent.

In terms of transportation, automobile manufacturing, railway and rail vehicle manufacturing and container manufacturing are the three most widely used sub-industries. Among them, with the implementation of new energy vehicles, the demand for aluminum has increased significantly.

According to data, for the same model, the three power system will lead to an additional 200-300kg weight of the whole vehicle; at the same time, the lightweight coefficient of new energy vehicles is 1.5-4 times higher than that of traditional fuel vehicles, which means that new energy vehicles are less lightweight. The three-power system usually accounts for 30% of the vehicle weight of new energy vehicles, and its lightweight is the key to lighten the weight and improve the battery life of new energy vehicles. In the future, the output of new energy vehicles, the improvement of production technology of replacing steel with aluminum and the continuous increase of aluminum consumption of bicycles will bring about a new increase in aluminum demand.

In the power industry, aluminum and its alloys not only have high structural strength and light weight, but also have good electrical conductivity, high ductility, non-magnetic and other characteristics, mainly used in transmission and distribution of Electroweb wires and cables and so on. According to the plan of the National Electroweb Company, 12600 km of UHV AC lines and 17200 km of DC lines are planned to be added during the 14th five-year Plan period, with a total investment of 300.2 billion yuan. UHV Electroweb will usher in a new round of construction peak. UHV Electroweb transmission cable mainly uses steel-cored aluminum strands, which is one of the important applications of replacing copper with aluminum. It is estimated that the amount of aluminum used in the construction of UHV projects will increase by 1.75 million tons during the 14th five-year Plan period, an increase of 17 percent over the 13th five-year Plan. The increase in investment by Electroweb has also driven demand for aluminium to some extent.

Therefore, although the demand of the real estate industry is likely to decline, the lightweight and ultra-high pressure construction of new energy vehicles will be a good supplement to the demand for aluminum, so there will not be a significant decline in demand. However, as the price of aluminum remains high, it will restrain the downstream demand manufacturers to a certain extent.

Related listed companies

Aluminum Corporation of China (02600pc601600.SH): a leading enterprise in China's non-ferrous metals industry, its comprehensive strength ranks in the forefront of the global aluminum industry, and it is also the only large-scale production and operation enterprise in China's aluminum industry that integrates bauxite, coal and other resources exploration and exploitation, alumina, primary aluminum and aluminum alloy product production, sales, technology research and development, international trade, logistics industry, thermal power generation and new energy power generation. In the first half of 2021, the company's alumina production was 8.25 million tons, up 14.3 percent from the same period last year; fine alumina production was 2.01 million tons, up 3.2 percent from the same period last year; and electrolytic aluminum production was 1.96 million tons, up 5.5 percent from the same period last year. The net profit of deducting non-return in 2021 is expected to be 7 billion yuan to 7.4 billion yuan, an increase of 1681% to 1783% over the same period last year.

In May 2020, the Boffa mine in Guinea was officially opened, and the route from port construction to Huasheng in Fangchenggang was opened. Aluminum Corporation of China is the only company with a super-large overseas resource base, and the amount of resources can ensure the development in the next 50 years. Through the layout of Boffa mine, the self-sufficiency rate of bauxite has been greatly increased, and the cost competitive advantage is significant. In addition, new energy accounts for about 50% of the company's electrolytic aluminum production, and the company will continue to distribute Yunnan hydropower, Guangxi nuclear power and wind photovoltaic in northwest China to increase the proportion of clean energy. Under the requirements of the "double carbon" policy, the company may benefit.

Mingtai Aluminum (601677.SH): founded in 1997, is one of the leading aluminum processing enterprises in China. The company mainly produces aluminum sheet, strip and foil as its main business. At present, the company has 680000 tons of recycled aluminum production capacity, mid-stream aluminum plate, strip and foil total production capacity of 1.2 million tons, aluminum profile production capacity of 20, 000 tons.

In the past, due to the low technical barriers and the substantial expansion in the business cycle, part of the processing pattern was even weaker than that of the upstream, so the mid-stream processing did not produce obvious bargaining power of the industrial chain to the upstream in the past. At present, based on the optimization of the supply pattern at home and abroad, Mingtai Aluminum can realize the grade protection of recycled aluminum instead of the common domestic casting aluminum production line, and the deformed aluminum can be directly used as raw materials by virtue of its strong process, channel and product advantages of all kinds of products. With the acceleration of domestic waste aluminum supply, the company's recycled aluminum production capacity is expected to further expand and thicken the company's profitability.