Aluminum prices are running short term

In the short term, aluminum prices are expected to continue to be strong. However, in the medium and long term, the new production capacity of alumina is still high, and the supply pressure will gradually appear.

Recently, aluminum prices have stood out, following a sharp rise on Friday, this week continued to exert force, once again running to the previous high near the close, as of May 13 close, Shanghai aluminum (14340, 135.00, 0.95%) 1906 contract closed at 14225 yuan / ton, two consecutive trading up 1.6%. At present, social inventories continue to decline, alumina prices rise to push the cost line up, it is expected that the short-term aluminum price oscillation will be strong, and the medium and long-term will continue to face supply pressure.

There is no good macro for the time being

The previously announced April manufacturing PMI was 50.1 and Caixin was 50.2, both down from March, and the increase in the scale of social financing at the end of April was 1.36 trillion yuan, 408 billion yuan less than the same period last year, and the new RMB loans in April were 1.02 trillion yuan, a year-on-year decrease of 161.5 billion yuan. The year-on-year growth rate of exports in April was -2.7%, lower than the expected 3.0% and down from the previous value of 14.2%.

The cost line continues to move upwards

Domestic alumina prices have been declining since September 2018, hitting a low of 2,645 yuan/ton since August 21, 2017 on April 15 this year. Recently, Shanxi's environmental protection news has been frequent, and the intersection and filial piety in the Luliang area have been reported by the media about the dust and leakage problems of the red mud reservoir, and the red mud discharge problem of the alumina plant in Shanxi Province may face environmental protection inspections, which will then cause the market to worry about the decline in alumina supply. Recently, environmental protection inspectors have ordered some alumina plants in Shanxi to reduce production, Jiaokou Xinfa 2.8 million tons of alumina due to red mud problems have stopped production of two production lines, the remaining two production lines will be shut down in the near future, Xiaoyi Huaqing Aluminum was forced to stop production due to local environmental pollution 450,000 tons of alumina project. Alumina prices continued to rise, and as of May 13, the average price of SMM alumina was reported at 2,803 yuan/ton. Due to the rise in alumina prices, the cost line of electrolytic aluminum continued to move upward, which supported the price of electrolytic aluminum.

The decline in production widened

According to the data, the total domestic output of electrolytic aluminum in the first four months was 11.523 million tons, a year-on-year decrease of 1.42%, and in the first four months of 2019, it continued to be affected by the loss and production reduction of electrolytic aluminum enterprises from June 2018 to February 2019, so that the scale of operating capacity continued to remain relatively low. Since April, although some production capacity has gradually resumed production, but the contribution to the overall output in April is limited, at the end of April, the domestic electrolytic aluminum operating capacity was 36.23 million tons, and the average operating rate of the industry was 88.8%, an increase of 0.3 percentage points from the end of March. However, after entering May, the contribution of resumption of production to output has gradually increased. It is expected that the output of electrolytic aluminum in May will be 3.025 million tons, a year-on-year decrease of 1.56%, and the reduction in output growth will be narrowed.

On the whole, the short-term basic face of aluminum prices to form a boost, Shanxi environmental protection led to the impact of alumina production, alumina prices rose to promote the cost line up, the current overall profit of electrolytic aluminum has been repaired, resulting in the acceleration of the resumption of production, but the short-term output contribution is limited, the inventory under the peak consumption season is expected to accelerate the decline, and the short-term aluminum price is expected to continue to be strong. However, in the medium and long term, the new alumina production capacity during the year is still at a high level, superimposed on the reduction of grid power prices, the increase in new production and resumption of production capacity, the supply pressure will gradually appear, and the rise in aluminum prices will face pressure.

(Source: Futures Daily)