Demand weakens, supply releases, aluminum prices fall under pressure [institutional research report]

On the whole, the domestic supply side growth, the international Lun aluminum price support is strong. The impact of the epidemic in the lower reaches has expanded, and the start-up of the processing industry has decreased compared with the previous month. Social inventory accumulates a small amount of negative noodles. At present, there is a certain adjustment demand for Shanghai aluminum disk after a continuous downward trend, or it will stabilize in a short time. In addition, the impact of the epidemic will be more reflected in the lag of demand. If the epidemic situation in the whole country, especially in the Yangtze River Delta and Pearl River Delta, can improve in May, there will be a strong kinetic energy rebound. Therefore, it is not recommended to chase short, it is recommended that speculative short orders gradually leave the market, and value preservation enterprises can appropriately buy multiple orders to preserve value. Attention should be paid to geopolitical issues and the latest developments in the epidemic. 05 contract upper pressure level 24000, lower support level 20000.

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The UK Regulatory Authority plans to review LME

The Financial Conduct Authority and the Bank of England will review the governance, market supervision and risk management of the London Metal Exchange after weeks of "epic Lenny".

On April 4, the Financial Conduct Authority (FCA) and the Bank of England Prudential Authority (PRA) issued a joint statement planning to review the London Metal Exchange (LME) and the London Clearing House (LCH) to explore what lessons can be learned by the two institutions in governance, market supervision and risk management.

FCA plans to review the London Metal Exchange (LME) and PRA plans to review the London Clearing House (LCH) as a central counterparty clearing house, the statement said. In addition, PRA and FCA will further engage with companies with significant positions in the market through their respective regulatory procedures to assess the effectiveness of their risk management and governance during this period.

Under section 166 of the Financial Services and Markets Act 2000, both the FCA and the Bank of England will appoint "technicians" to assist in the investigation. FCA and the Bank of England said that after the investigation report was submitted, it would refer to the investigation report to determine whether to take further action and announce the next step in due course.

At the end of the technician review, FCA can order LME to change the way it does business. However, as this is not an enforcement action, it will not involve matters such as fines. Subsequently, the LME responded that it welcomed the statement by the Financial Conduct Authority and the Bank of England to review the response to nickel market events, and would establish an independent nickel market transaction review and entrust an independent body to investigate the nickel market events. LME also agreed to "strengthen its governance" by appointing additional independent directors, according to a regulatory statement.

Outer disk affected by this investment boom cooling, Lun aluminum also showed a continuous pullback trend.

II. Recent price trends in the spot market

Domestic aluminum prices fell sharply this week. The spot price of SMM A00 fell for three days in a row. The average weekly price of SMM A00 recorded 22103.3 yuan / ton, a drop of 3.0%. In terms of spot goods in East China, affected by the epidemic in East China this week, the circulation of aluminum ingots in Wuxi and other places is difficult, and Shanghai aluminum has fallen sharply, and the consignors are mainly selling at a competitive price. The spot discount in East China has narrowed compared with last week. As of Friday, the average discount price in East China was around 50 yuan / ton, up 40 yuan / ton compared with last Friday. South China is relatively less affected by the epidemic, and close to delivery, large families receive goods in the city, downstream replenishment enthusiasm improved, weekly discount than last week has been repaired, as of this Friday, SMM Foshan discount is 20 yuan / ton, up 40 yuan / ton compared with last Friday. Generally speaking, aluminum weak operation, downstream inventory enthusiasm has improved, and delivery day is approaching, large households receive or increase, helping to narrow the short-term spot discount.

III. Recent production capacity and start-up of electrolytic aluminum

As of April 7, 2022, China's effective production capacity of electrolytic aluminum (calculated in terms of productive devices) is 46.347 million tons, with a start-up rate of 40.366 million tons, with an operating rate of 87.10%.

As of April 7, 2022, China's electrolytic aluminum production reduction in 2022 involves 400000 tons, of which 400000 tons have been reduced, and it has been determined that the production will be reduced, or the production will be reduced but not definitely reduced.

As of April 7, 2022, the total recovery scale of electrolytic aluminum in China in 2022 is 3.672 million tons, of which 2.11 million tons have been resumed and 1.57 million tons are to be reproduced. It is expected that there will be another 1.457 million tons of electrolytic aluminum production by the end of this year, and a total of 3.562 million tons will be restored this year.

As of April 7, 2022, China's new production capacity of electrolytic aluminum has been completed and to be put into production of 2.675 million tons, has been put into production of 970000 tons, and new capacity has been built to be put into production of 170.5 tons. It is expected that a total of 1.38 million tons will be put into production this year, with a total of 2.35 million tons expected to be achieved this year.

IV. Recent inventory of aluminum ingots

(1) the changes of aluminum inventory in LME and Shanghai Stock Exchange last week

The latest issue of LME aluminum ingot inventory of 619775.00 tons, compared with the previous trading day-100.00 tons. The latest phase of the stock of aluminum ingots in Shanghai Stock Exchange is 305805.00 tons, compared with last week-3137.00 tons.

(2) changes in social aluminum ingot inventory

The inventory of aluminum ingots in the latest phase of Baichuan 12 places is 1.0818 million tons, an increase of 12700 tons over the previous week. The latest issue of Shanghai Nonferrous Network (SMM) aluminum ingot inventory is 1.066 million tons, an increase of 25000 tons over the previous week. Due to the epidemic situation, the social inventory of aluminum ingots is blocked, and there is a small accumulation of aluminum ingots.

Summary and operation strategy

Recently, Shanghai aluminum disk continues to decline, and the decline is larger. In addition to the macro impact of the Fed's partial hawk and the rise in the dollar index, the British Regulatory Authority's investigation of LME also led to a fall in the price of Lun aluminum. From the domestic fundamental point of view, on the supply side, the current domestic production capacity is gradually expanding, and the market supply is increasing. However, the impact of the epidemic is reflected in the circulation link, and the discharge of aluminum plants is affected to a certain extent. The European energy crisis is still simmering, coupled with strong geopolitical uncertainty, and foreign supply continues to be tight. On the demand side, the operating rate of downstream processing enterprises affected by the epidemic continues to decline compared with the previous month. At present, the production capacity of aluminum processing enterprises in many places across the country has been shut down or partially shut down. In terms of terminals, the automotive industry, such as Shanghai Volkswagen and Changchun FAW, have been shut down by the epidemic, and the north may gradually recover in the future. At present, the impact of the epidemic is still the main cause of weak demand in the short term. In terms of exports, due to the low ratio of Shanghai to aluminum, it is relatively good. In terms of inventory, on April 7, 2022, SMM counted 1.066 million tons of domestic electrolytic aluminum social inventory, 25000 tons more than last week. The three-day inventory announced on Monday showed a slight decline.

On the whole, the domestic supply side growth, the international Lun aluminum price support is strong. The impact of the epidemic in the lower reaches has expanded, and the start-up of the processing industry has decreased compared with the previous month. Social inventory accumulates a small amount of negative noodles. At present, there is a certain adjustment demand for Shanghai aluminum disk after a continuous downward trend, or it will stabilize in a short time. In addition, the impact of the epidemic will be more reflected in the lag of demand. If the epidemic situation in the whole country, especially in the Yangtze River Delta and Pearl River Delta, can improve in May, there will be a strong kinetic energy rebound. Therefore, it is not recommended to chase short, it is recommended that speculative short orders gradually leave the market, and value preservation enterprises can appropriately buy multiple orders to preserve value. Attention should be paid to geopolitical issues and the latest developments in the epidemic. 05 contract upper pressure level 24000, lower support level 20000.