Aluminum: The peak consumption season is approaching, and the future price is expected to rise

China's metallurgical-grade alumina output was 6.72 million tonnes in January 2024, with an average daily output of 9,800 tonnes per day to 216,800 tonnes per day, SMM data showed. Total production in January decreased by 1.10% month-on-month from December 2023 and increased by 5.5% year-on-year. As of the end of January, China's completed alumina production capacity was 1000000 tons, the operating capacity was 79.14 million tons, and the national operating rate was 79.1%. The resumption of production of alumina enterprises after the Spring Festival is less than expected, and the spot supply side is relatively tight. In terms of regions, the weekly operating rate of alumina plants in Shanxi increased slightly month-on-month after the holiday, mainly due to the improvement of the stability of ore supply of some alumina plants, which led to the increase of enterprise operating capacity; In the first week after the holiday, the operating rate of alumina enterprises in Guangxi increased by 0.52% month-on-month to 84.56%. Mainly due to the reduction of production of an alumina plant before the holiday due to insufficient ore supply and production line maintenance, the operating capacity recovered after the holiday; Affected by environmental protection and the back-check mechanism, the mines in Henan that were in a state of shutdown failed to resume production in February, and the shortage of local ore supply continued to limit some production capacity, making the overall operating rate of alumina enterprises low; An alumina plant in Guizhou stopped production in early February due to a mine holiday, and production has resumed in late February, and alumina output is expected to decrease in February. In the later stage, if the suspended mines in Shanxi and Henan gradually resume production, with the increase of production, it is expected to alleviate the phenomenon that bauxite has no market. SMM expects the average daily output of alumina in February 2024 to be 217,400 tons/day, with a total operating capacity of about 79.34 million tons, up 0.25% year-on-year.

Domestic electrolytic aluminum production capacity maintained stable operation In January, domestic electrolytic aluminum enterprises mainly maintained stable operation, and there was no large-scale suspension and resumption of production in the month. In January this year, SMM's domestic electrolytic aluminum output was 3.562 million tons, a year-on-year increase of 4.2%. In January, the average daily output of the domestic electrolytic aluminum industry remained stable at around 114,900 tons month-on-month. As of the end of January, SMM statistics showed that the domestic electrolytic aluminum production capacity was about 45.19 million tons, and the domestic electrolytic aluminum operating capacity was about 41.98 million tons, and the industry operating rate increased by 3.9% to 92.9% year-on-year. In January, the operating rate of domestic aluminum primary processing enterprises declined slightly, and the proportion of molten aluminum in the industry decreased by 3.7% month-on-month and 11.2% year-on-year to about 70.36%. According to the calculation of the proportion of molten aluminum, the domestic electrolytic aluminum ingot volume in January decreased by 24% year-on-year to 1.06 million tons.

Entering February, Yunnan is still in the dry period, most of the local electrolytic aluminum enterprises are waiting for the guidance of power supply information to clarify the resumption of production plan, and it is expected that most of the enterprises in the province will operate steadily from February to March. There is no expectation of capacity changes in other regions. It is expected that the domestic electrolytic aluminum operating capacity in February may be stable at about 42 million tons, and the average daily output of electrolytic aluminum in February will be stable month-on-month, and the total domestic electrolytic aluminum output in February is expected to be about 3.33 million tons, a year-on-year increase of 7.9%. In February, the capacity transformation and upgrading of Guizhou Anshun Aluminum Industry was carried out smoothly, and the company had a completed production capacity of 130,000 tons of electrolytic aluminum, which is expected to resume production in the first half of the year. During the Spring Festival holiday in February, the operating rate of downstream enterprises in domestic molten aluminum processing declined, and the amount of ingots in the industry showed a phased growth. In February, the proportion of molten aluminum in the industry may fall to about 66%, a year-on-year increase of 5%. Although China's electrolytic aluminum accounts for more than half of the world's electrolytic aluminum production, China still needs to import part of the electrolytic aluminum from abroad to make up for the shortcomings of the industrial chain. From the perspective of electrolytic aluminum imports, according to the data of the General Administration of Customs, China's cumulative imports of electrolytic aluminum in 2023 will be 1.5422 million tons, a year-on-year increase of 1.3 times. Among them, the import volume of electrolytic aluminum in December last year was 175,200 tons, a year-on-year decrease of 9.86%. Among them, China's imports from Russia will be 1.175 million tons in 2023, accounting for 76.2% of the total imports. This year, the long-term order volume of Rusal imported to China is about 1.2 million tons, and the import window may still be opened in the later period.

Domestic electrolytic aluminum has entered the seasonal accumulation of domestic aluminum social inventory after the trend of one and a half months of destocking, in the last week before the Spring Festival, that is, at the end of January. In the first week after the holiday, the inventory increase of domestic electrolytic aluminum ingots was within a controllable range. On February 22, SMM statistics showed that the total social inventory of electrolytic aluminum ingots decreased by 32.8% year-on-year to 706,000 tons, and the domestic circulating electrolytic aluminum inventory was 580,000 tons, which was 215,000 tons compared with the pre-holiday accumulation, and the performance of the accumulated inventory was better than the market expectations before the holiday. Mainly due to the influence of centralized stocking before the holiday, the market has increased the consumption of inventory, and the continuous impact of Yunnan's production reduction has also made South China less stocked. As of February 26, the total social inventory of electrolytic aluminum ingots was 748,000 tons, a year-on-year decrease of 520,000 tons, and was at a low level in the same period in the past seven years. Due to weather reasons, there is a backlog of about 20,000 tons of aluminum ingots on the platform in Xinjiang in the early stage, and there are still some in-plant inventories in electrolytic aluminum enterprises. At the same time, although the import window of electrolytic aluminum is still closed after the holiday, the inventory in the Shanghai Free Trade Zone has increased significantly recently, and the subsequent impact on the domestic social treasury still needs to be noted. In January this year, the operating rate of national aluminum profile enterprises continued to decline to 47.94%. After entering February, most of the aluminum profile factories in the first half of the holiday shutdown state, some enterprises take advantage of the holiday to repair production equipment, February production time is basically reduced by half, is expected to February aluminum profile enterprises operating rate significantly lower. Specifically, after the Spring Festival holiday, aluminum downstream processing enterprises are resuming work one after another, the recovery of industrial profiles and aluminum plates, strips and foils is acceptable, most of the building profiles and other sectors are concentrated after the Lantern Festival, and the operating rate of leading aluminum cable enterprises last week increased by 4% to 58% month-on-month, and the start of aluminum downstream enterprises will continue to improve in the later period. Since the beginning of this year, the center of gravity of the total cost of domestic electrolytic aluminum has risen, and corporate profits have declined. According to SMM data, the average total cost of China's electrolytic aluminum industry in January 2024 was 16,819.66 yuan/ton, an increase of 504 yuan/ton from December 2023. The average profit of the electrolytic aluminum industry in January was 2259.9 yuan/ton, 269 yuan/ton narrower than that in December last year. The cost difference between regions in the electrolytic aluminum industry narrowed in January, and Guizhou, as the province with the highest cost, compared with Xinjiang, which has the lowest cost, the cost difference between the two was 5,137 yuan/ton. As of February 22, 2024, the total cost of domestic electrolytic aluminum was 16,884.07 yuan/ton, a decrease of 372.76 yuan/ton from the same period last year. As of February 22, 2024, the profit level of the domestic electrolytic aluminum industry was 1845.93 yuan/ton, an increase of 482.76 yuan/ton over the same period last year. The tight ore supply situation is expected to continue into March, which will still have some support for alumina spot prices. At present, the overall performance of electrolytic aluminum raw materials is in a stable state, and it is expected that the cost of electrolytic aluminum will fluctuate in a narrow range in the near future.

Automobile production and sales in January increased by about 50% year-on-year In January this year, the off-season of domestic automobile production and sales was not weak, showing a significant year-on-year growth. Vehicle production in January totaled 2.41 million units and 2.439 million units, down 21.7% m/m and 22.7% m/m and up 51.2% and 47.9% y/y, respectively. First of all, in the same period last year, under the influence of the Spring Festival month and the switch of promotion policies, the base was at a low level. Secondly, as the Spring Festival holiday approaches, New Year's promotional activities continue to be launched, driving the continuous release of car purchase demand; Thirdly, the export performance was outstanding, and the independent brands continued to steadily expand overseas markets, helping the high growth of exports. As a bright spot in the automotive industry, new energy vehicles continue to grow rapidly year-on-year. In January this year, the production and sales of new energy vehicles reached 787,000 and 729,000 respectively, down 32.9% and 38.8% month-on-month, and up 85.3% and 78.8% year-on-year, respectively, with a market share of 29.9%.

This year's Spring Festival holiday is in mid-February, and there are only 18 working days in February, so the off-season and flexible vacation of the Spring Festival auto market make the effective production and sales time of passenger cars in February significantly lower than the same period last year. At the same time, the sales of new energy vehicles are expected to drop to 380,000 units in February, and the national policy of promoting consumption and stabilizing growth will continue to exert force in 2024. Under the promotion of a number of policies for the high-quality development of the new energy vehicle industry, the market vitality will be further stimulated. The China Association of Automobile Manufacturers predicts that China's total automobile sales will exceed 31 million units in 2024, a year-on-year increase of more than 3%. It is expected that the sales volume of new energy vehicles will reach 11.5 million units, and the export unit will be 5.5 million units. Shanghai aluminum is expected to rise on the macro front, the performance of the U.S. manufacturing PMI and consumer confidence index is better than market expectations, the U.S. economy is still relatively resilient, the expectation of a soft landing of the economy has increased, and the need for the Federal Reserve to cut interest rates in the short term has been diluted. Judging from the minutes of the Fed's monetary policy meeting in January, Fed policymakers generally believe that the current policy rate may have reached the peak of this week's rate hike cycle and are cautious about cutting rates too soon. Fundamentally, on the supply side, the current domestic supply of electrolytic aluminum tends to be stable, and the power supply in various regions is stable and orderly. On the demand side, the operating rate of leading domestic aluminum downstream processing enterprises increased by 4% to 8% last week compared with the previous week. In the later period, with the acceleration of the resumption of work of aluminum downstream processing enterprises, the peak consumption season is approaching, and the demand is expected to pick up. Combined with inventory, it is expected that the weak accumulation trend of electrolytic aluminum ingots will continue until mid-March, and there is little room for growth in the later period, and low inventory and weak accumulation will provide support for aluminum prices. Overall, with the gradual warming of downstream demand in the future, the focus of Shanghai Aluminum is expected to move upward, but the upside should not be overestimated. The upper pressure level of the main contract is 19,180 yuan/ton, and the lower support is at 18,650 yuan/ton. Pay attention to the macro guidance brought by the relevant proposals of the two sessions.

Please do not hesitate to contact Jean at jeantang@smm.cn or 86-19946295759 if you have any question or inquiry.