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SHFE Aluminium Surged Following Zinc Contract in Relays due to Production Cuts in China and Abroad
Aug 17, 2022 16:35CST
Source:SMM
SHFE and LME aluminium prices rose boosted by the news of the production reduction of overseas aluminium smelters. Around noon time, SHFE aluminium has already outperformed SHFE zinc with a gain of more than 4%. LME aluminium stayed on the upward trajectory as well and once recorded an increase of more than 2%.

SHANGHAI, Aug 17 (SMM) - Yesterday, as soon as the news that the European zinc smelter Budel would be overhauled starting from September 1 came out, zinc price soared in overnight trading, and SHFE aluminium also followed suit. During intraday trading today, both SHFE and LME aluminium prices rose boosted by the news of the production reduction of overseas aluminium smelters. Around noon time, SHFE aluminium has already outperformed SHFE zinc with a gain of more than 4%. LME aluminium stayed on the upward trajectory as well and once recorded an increase of more than 2%.

As of the close of the day, SHFE aluminium added 3.75% to 18,660 yuan/mt. As of 15:23 Beijing time, LME Aluminium gained 1.30% and stood at $2,423/mt.

It is shown on Hydro official website on August 17 that Hydro will shut down the primary aluminium production of smelter Slovalco located in Slovakia, which is scheduled to be completed before the end of September. The main reason is that the Slovalco fails to secure power supply through long-term orders. So in the face of stubbornly high power prices, maintaining operation will summon huge economic losses. Slovalco, which currently has an annual capacity of 175,000 mt, has cut the production by 40% around late 2021 and early 2022, and is currently operating with a capacity utilisation rate of 60%. Hydro said that it will the follow-up production resumption will depend on the market situation and power framework conditions.

 At the same time, Hydro disclosed on its official website stated that the strike at the aluminium smelter Sunndal began on August 22, which will affect the production of major products with an estimate cut of 20%, involving a production capacity of 80,000 mt based on 400,000 mt of installed capacity. At present, Hydro said that Sunndal has now 665 employees at work.

In addition, due to the shortage of electricity caused by the continuous high temperature in Sichuan province, industrial enterprises have been required to cut power use starting from August 15. At present, the enterprises in Sichuan have begun to reduce the operating rates according to local electricity demand. In terms of aluminium production, the current aluminium production in Sichuan has decreased by nearly 400,000 mt, accounting for 33% of the province's total aluminium capacity.

After the production reduction in Sichuan, it is expected that the domestic operating aluminium capacity will drop by 270,000 mt to 41.13 million mt at the end of August with an expected monthly output of 3.47 million mt, according to SMM statistics. However, there are capacities in Gansu, Guangxi, Inner Mongolia expected to resume or commission, with a combined capacity of 700,000 mt. Therefore, it is expected that the domestic operating aluminium capacity will be nearly 42 million mt by the end of this year. But the specific resumption or commissioning of capacities still depends on local market dynamics.

Affected by the futures market, the spot prices rebounded for the first time after falling for two consecutive days. As of today, the spot price of SMM A00 aluminium ingots was 18,460-18,500 yuan/mt, with an average of 18,480 yuan/mt, an increase of 350 yuan/mt from the previous day.

SMM aluminium price in Foshan showed a discount of 125 yuan/mt over the SHFE 2209 contract, down 15 yuan/mt from yesterday, and the average spot price recorded 18,350 yuan/mt, up 330 yuan/mt from a day ago. 

The production cuts in Sichuan due to power shortage and other reasons has brought down aluminium production in August, easing the pressure on the supply side. However, domestic downstream consumption is still in the off-season, and downstream factories in Sichuan, Chongqing, Jiangsu and Zhejiang are also facing power rationing and production cuts. Furthermore, rising aluminium social inventory has kept the spot prices in discounts.

Therefore, in the short term, aluminium prices are likely to move in a wide range with weak supply and demand as well as resurfacing pessimism on the macro front. In the future, the market players shall still pay attention to the changes on the supply and the consumption end.

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Futures
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