Fundamental support weakens aluminum price upward resistance increases

SMM Network News: aluminum prices have experienced a sustained rebound for three months, the current main contract prices have returned to the level before the outbreak of the epidemic abroad, and the spot price has returned to more than 14000 yuan / ton. Behind the sustained rebound is the dual support of macro and fundamentals. On the macro level, the domestic economy continues to pick up, and the manufacturing PMI continues to rise and fall above the line. At present, most industries have returned to close to the normal level. At the same time, the government's stimulus policy also makes the market mood gradually optimistic. Fundamentally, downstream demand brought about by the resumption of production and work is strong, with apparent consumption growing by more than 10 per cent year-on-year in the second quarter, inventories falling to around 700000 tons, low inventories giving favorable support to bulls and rising aluminium prices. However, as aluminum consumption gradually enters the off-season and smelting capacity continues to release increments, the margin of supply and demand will further weaken, inventory inflection point is approaching, and aluminum price upward resistance increases, but given the uncertain pace of accumulation and the difficulty of returning to high levels before contract delivery in July, aluminum prices may not fall smoothly.

The seasonal off-season is coming.

In June, demand has weakened from the previous month, showing slightly signs of the off-season, but the weakening rate is lower than expected, led by the real estate, health care and home appliance sectors. Year-on-year, the growth rate of domestic consumption is still expected to be close to the level of about 10%. In the face of relatively strong demand, inventories are still falling, with the national inventory of aluminum ingots falling to 718000 tons as of June 29, and the overall social inventory (aluminum bars + aluminum ingots) falling below the level of 800000 tons. As new orders from processing companies fell in June, the corresponding production schedule will be reflected in July, while seasonally, demand in July usually falls further than in June, so the marginal month-on-month ratio of domestic demand continues to weaken. In terms of exports, at present, Europe and the United States and other economies are in a positive stage of resuming work and production, and the PMI of manufacturing and service industries are all picking up month-on-month but are still below the line of prosperity and decline. In particular, the rebound of the epidemic in many states in the United States will have a certain impact on the recovery plan, and the speed of demand improvement will be weaker than that of China. At the same time, the Shanghai-Lun ratio remains high, which is not conducive to the improvement of exports, and is expected to remain weak. Taken together, the margin of demand will be significantly weaker.

Smelting profits remain high

Due to the continuous rebound of aluminum prices, the average profit of domestic electrolytic aluminum smelting has returned to a high level and maintained for a long time. It is estimated that the average profit of smelting is as high as 1600 yuan / ton, and more than 90% of the production capacity is profitable. In this case, the production capacity of the pre-maintenance shutdown has a strong willingness to resume work, including Liupanshui Duanyuan Aluminum, Chongqing Guofeng, Wanji Aluminum, Henan and Hong Kong Longquan, etc., have resumed production or are in the process of resuming production. At the same time, in terms of new investment, Yunnan Wenshan, Guangyuan Zhongfu, Yunnan Shenhuo and so on continue to contribute capacity increment, and the supply side continues to grow. According to statistics, as of June 24, the national operating capacity of electrolytic aluminum has returned to 37.41 million tons, an increase of 480000 tons over the end of May. In the second half of the year, Yunnan, Inner Mongolia and Guangxi will continue to contribute to the increase in production capacity, which is expected to reach 2 million tons, and the supply pressure is gradually emerging.

Alumina rebounds slowly

In the near future, Guangxi Huasheng new materials are also expected to be put into production, superimposed with the existing built capacity, the domestic alumina supply is sufficient, at the same time, overseas alumina prices still have advantages, and the import window continues to open. At present, the contradiction between supply and demand of alumina is not prominent. considering the continuous recovery of domestic electrolytic aluminum smelting profits and the simultaneous repair of overseas prices, alumina prices have the power to rise, but the rising space and speed is relatively slow.

To sum up, at present, in the case of downward demand and increased supply, the margin of supply and demand will further weaken, inventory will usher in an inflection point, fundamental support will be weakened, and the upward resistance to aluminum prices will increase, but before the delivery of the contract in that month, the pace of accumulation is still uncertain, inventory increment is expected to be limited, short-term recommendations are still mainly wait-and-see, until accumulation is clear and the contract is switched short.

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