Aluminum prices fluctuate at high levels

Last week, in the context of the US inflation data once again exceeding expectations, Fed officials recommended to reduce bond purchases, so the price of non-ferrous metals was once under pressure. However, Yunnan, Inner Mongolia, Henan and other places have once again restricted the production of non-ferrous industries due to power shortages. The production capacity previously shut down in Yunnan failed to resume production as scheduled, and aluminum prices hit the 19,500 mark.

Due to power shortages, Yunnan Province shut down the electrolytic aluminum scale exceeding 800,000 tons in late May. Previously, it was expected to return in July and thereafter, but the current nationwide power consumption is tight, and the return of shutting down production capacity is delayed for at least one month. As the manpower and material resources of the originally planned new production capacity were squeezed out, the output loss caused by far exceeded the output quantity of 2 months.

The operating rate of aluminum profile companies remained stable, large companies were basically at full capacity, and the orders and operations of construction profile companies weakened.

Aluminum sheet and strip companies, the operating rate of leading companies was reduced to 75.8%, and production was forced to cut due to the limited power supply of Henan's large sheet and strip plants. July-August is the traditional off-season, and corporate orders gradually decrease, but companies generally report that this year’s off-season is late and the impact is relatively minor. According to news, the power curtailment in Henan Province is expected to be alleviated on July 18.

Aluminum foil companies, the operating rate of leading companies slowly declined to 86.3%. Under the traditional off-season, the pace of start-up of aluminum foil leading companies will continue to slow down slightly.

Recycle aluminum companies, the operating rate is mainly stable. In the later stage, the die-casting enterprises will gradually enter the off-season, and the operating rate may continue to weaken slightly.

According to SMM data, as of July 15, the domestic social inventory of aluminum ingots was 832,000 tons, a month-on-month reduction of 26,000 tons. In the context of the landing of the auction, the spot market still maintains a sale of more than 10,000 tons, indicating the resilience of downstream consumption. Due to power curtailment in Henan, destocking is expected to slow down next week.

LME aluminum stocks decreased by 48,875 tons to 1,457,800 tons last week.

Main logic

(1) On the supply side: In June 2021, domestic output was 3.22 million tons, a year-on-year increase of 7.1%. In July, the process of resuming production in Qinghai, Shanxi and other places progressed as planned, but the reduced production capacity in Yunnan failed to return as scheduled, resulting in a weaker than expected 3.32 million tons of output. In terms of imports, the import window is closed due to the dumping of 50,000 tons of reserves, and the import volume is expected to be reduced to the level of 50,000 tons.

(2) In terms of demand: power is tight and downstream production is limited, leading companies' operating rates have declined. This year's off-season factors are weaker than before, and consumption has been delayed but has not disappeared.

(3) In terms of inventory: social inventory fell by 26,000 tons to 832,000 tons from the previous month. Inventories will continue to decline, but the rate of decline is expected to narrow.

(4) Overall: the state dumps coal storage and investigates and deals with bulk commodity hoarding, showing determination to control prices, but prices still depend on the released supply. Regarding the supply and demand of electrolytic aluminum, although unexpected resumption of production occurred, the quantity is not huge. Delays in resuming production in Yunnan constitute a hidden supply hazard; the monthly volume of 50,000 tons is lower than market expectations, if the reserves are sold at 350,000 tons It is estimated that this will not make up for the 500,000 tons reduction in Yunnan, and the overall impact on the market is controllable. On the consumer side, downstream power rationing has delayed rather than disappeared, and this year's off-season is significantly better than in previous years. The decline in the start of intermediate links is not a cliff-like decline. The inventory at the end of the month is still expected to fall to the range of 800,000-85 million tons, which supports prices.