Aluminum prices in the second quarter may be strong volatility

Aluminum prices are non-ferrous varieties that have performed well this year, especially since April, and whether they can maintain their upward trend in the future mainly depends on downstream demand and resumption of production capacity. On the demand side, the recovery of real estate is strong, and the marginal increase in resumption of production capacity may be relatively weak. It is expected that aluminum prices may fluctuate strongly in the second quarter.

Macro data is positive

China's official manufacturing PMI in April was 50.1, down 0.4 percentage points from the previous month, remaining in the expansion range for two consecutive months, but the magnitude weakened; in March, China's M2 increased by 8.6% year-on-year; In March, China's social financing increased by 2.86 trillion yuan, 1.28 trillion yuan more than the same period last year. Among them, M2 and social finance data exceeded expectations.

From the perspective of electricity consumption, the China Electricity Council disclosed the power data in March 2019: the electricity consumption of the whole society in March was 573.2 billion kWh, a year-on-year increase of 7.5%, exceeding expectations. Electricity consumption in January ~ March was 1.6795 trillion kWh, a year-on-year increase of 5.5%. In March, the country's power generation capacity was 569.8 billion kWh, a year-on-year increase of 5.4%; The power generation in January ~ March was 1.6747 trillion kWh, a year-on-year increase of 4.2%.

From the perspective of railway freight volume, the cumulative year-on-year growth in January, February and March 2019 was 8.2%, 3.3% and 3% respectively, showing a weak recovery. In January, February and March 2019, the balance of RMB loans of China's financial institutions was 87.18 trillion yuan, 87.92 trillion yuan and 89.03 trillion yuan respectively, with a year-on-year increase of 14%, which was relatively neutral. At present, the credit easing is still being transmitted downward, and the sustainability of tax and fee cuts is strong, and China's economy will continue to recover.
 

Property market "Xiaoyangchun"

Aluminum for construction accounts for about 33% of China's aluminum terminal consumption. The Bureau of Statistics announced that China's national real estate development investment in January ~ March increased by 11.8% year-on-year, higher than 11.6% in January ~ February; The area of new housing starts increased by 11.9% year-on-year, significantly higher than 6% in January ~ February. In January ~ March, the sales area of commercial housing decreased by 0.9% year-on-year, and the sales area of commercial housing decreased by 3.6% in the first two months; In the same period, the sales of commercial housing increased by 5.6% year-on-year, compared with an increase of 2.8% in the first two months. At the end of March, the area of commercial buildings for sale was 516.46 million square meters, down 9.9% year-on-year.

According to the research data of real estate companies, in the first four months of this year, the sales of 75 real estate companies exceeded 10 billion yuan, of which the sales of 5 leading real estate companies such as Country Garden, Vanke, Evergrande, Poly and Sunac exceeded 100 billion yuan. While sales remained stable, real estate companies took land actively, and the phenomenon of land premium rate exceeding 100% appeared again, with 18 companies acquiring more than 5 billion yuan of land in a single month, refreshing the monthly record of the land market in the past year or so. Among them, 8 enterprises, including Sunac, Country Garden, Xincheng, China Shipping, China Resources, Greentown, Rongsheng and Gemdale, have acquired more than 10 billion yuan of land.

This is closely related to the marginal improvement of financing channels for real estate enterprises. In April, real estate companies intensively released financing of nearly 260 billion yuan, and the financing scale was close to 850 billion yuan. However, due to the high leverage ratio of Chinese residents and the central government's positioning of "housing not speculation", it will be difficult for the property market to continue for a long time, but it will still support aluminum prices in the medium term.

Power electronics and transportation account for 14% and 12% of China's aluminum consumption, respectively. According to the data of the China Passenger Car Association, in March, the retail sales of passenger cars in China's broad sense were 1.78 million, a year-on-year decrease of 12%, falling for 10 consecutive months, showing a cliff-like stall, and the automotive industry has not yet seen an inflection point. According to the 2018 Social Responsibility Report of the State Grid Corporation of China, the planned investment of the State Grid in 2019 was 512.6 billion yuan, a year-on-year increase of 4.84% compared with the actual completion of last year, which was relatively neutral.

Resumption of production

With the rapid rise in aluminum prices since April, the profit level of the electrolytic aluminum industry has recovered to a certain extent, but it is not enough to stimulate large-scale resumption of production. The current time point also corresponds to the successive recovery of Shandong Weiqiao's shutdown in response to the autumn and winter production restriction policy. In November 2018, Shandong Weiqiao Customs stopped production of about 500,000 tons. On April 15, Shandong Province announced the document "Announcement on the Replacement Plan of 542,000 Tons of Electrolytic Aluminum Production Capacity of Shandong Weiqiao Aluminum and Electric Co., Ltd." According to the plan, Shandong Weiqiao needs to dismantle the original production capacity after the replacement capacity is put into operation, and the expected start of dismantling is in June. It is expected that this part of the capacity after the second quarter may put pressure on aluminum prices.

In the first quarter of this year, the cumulative output of domestic electrolytic aluminum was 8.633 million tons, a year-on-year decrease of 1.2%. Among them, the output in March was 2.981 million tons, a year-on-year decrease of 1.5%. As supply and demand remain tight, the fundamentals can remain positive in the second quarter. However, due to the general expectation that the rise in aluminum prices will stimulate a larger-scale resumption of production, and the resumption of Weiqiao replacement capacity is imminent, it is expected that aluminum prices will fluctuate strongly.

(Source: China Nonferrous Metals News)