The aluminum market maintains a pattern of external strength and internal weakness [institutional review]

Recently, the conflict between Russia and Ukraine intensified concerns about overseas aluminum supply. Lun Aluminum's performance was strong, hitting a record high of US $3480 / ton and driving Shanghai Aluminum to maintain its high level. Last Friday, aluminum prices at home and abroad fell, the pattern of strong Lun and Shanghai is still maintained, and the evolution of the conflict between Russia and Ukraine is expected to increase the volatility of aluminum prices in the short term.

The conflict between Russia and Ukraine is still the main influencing factor.

The impact of the conflict between Russia and Ukraine on aluminum prices is mainly in terms of supply and cost. Russia is the world's second largest producer of primary aluminum. According to SMM, Russia's electrolytic aluminum production capacity in 2021 was 3.76 million tons, accounting for about 5.6 per cent of global output. The average monthly export volume was 290000 tons, accounting for about 12 per cent of global exports. In 2021, Rusal exported 1.601 million tons of electrolytic aluminum to Europe and 312000 tons to the United States, so if Western countries impose sanctions on Rusal, it will cause an obvious shortage of aluminum supply in Europe and further push up inflation in the United States. However, the current sanctions do not cover the energy and aluminum industries for the time being. From the perspective of energy prices, the current production capacity of European aluminum plants has been reduced by about 850000 tons due to higher natural gas and electricity prices, and Germany recently announced that it will suspend the examination and approval process for the Beixi No. 2 pipeline. The problem of natural gas energy shortage in Europe is still difficult to solve, and the follow-up supply is still facing the possibility of production reduction.

The interference of domestic supply fades, and production capacity rises slowly.

The domestic supply side has remained stable recently, and with the decline of the impact of the epidemic in Guangxi, most aluminum-related enterprises have resumed normal production and shipping, and the region has also issued a special resumption support policy for electrolytic aluminum enterprises. At the same time, the alumina plant that had previously reduced production also resumed production quickly after the end of the Winter Olympic Games, and the previously restricted roasting capacity basically returned to the level at the end of January, the market shipping sentiment was strong, alumina prices began to fall, and cost support weakened. At present, the resumption of electrolytic aluminum production is still going on, and the existing production capacity and new production capacity in Yunnan are actively promoting the plan to be put into production. By the end of January, the domestic operating capacity of electrolytic aluminum was about 38.38 million tons, an increase of 680000 tons over the end of December last year. Yunnan, Inner Mongolia, and Qinghai still had plans to resume production of 300000 tons in February, taking into account the 420000-ton reduction caused by the sudden epidemic in the hundred mining areas of Guangxi. The average daily output of electrolytic aluminum in China is expected to increase slightly to 104000 tons in February.

Downstream construction rebounded and inventory continued to accumulate

In the past two weeks, the average operating rate of aluminum downstream leading processing enterprises has rebounded steadily, but it has not yet reached the normal starting level, and the continued rise in aluminum prices has led to fear of heights in the lower reaches. In terms of inventory, as of February 24, domestic social stocks had accumulated to 1.099 million tons, with a total of 374000 tons during the Spring Festival and three weeks after the festival, down from 453000 tons and 540000 tons in the same period last year and the year before last. From the perspective of absolute quantity and relative increment, the current inventory pressure is not great, and the inventory of aluminum bars has begun to decline, and it is expected that the electrolytic aluminum will begin to remove the storage cycle in another two weeks or so.

Overall, the short-term uncertainty of the situation in Russia and Ukraine will still support Lun Aluminum, thus driving Shanghai Aluminum to maintain a high level, but the geopolitical risk of the transaction is greater, and the current high aluminum price is relatively poor. From the perspective of domestic fundamentals, both supply and demand have recovered, inventory is still in the accumulation stage, and the overall contradiction is not obvious, and the state's recent further improvement of the coal market price formation mechanism has suppressed aluminum prices to a certain extent, and aluminum prices are expected to maintain a strong pattern on the outside and weak on the inside. pay attention to the situation in Russia and Ukraine, the inflection point of inventory and the rhythm of resumption of production.