Destocking of aluminum ingots proves the shortage of supply

Supply Disruption

Recently, aluminum prices have seen a major correction, and global fundamentals have not deteriorated significantly. On the contrary, the simultaneous destocking of domestic and foreign aluminum ingots proves that the supply shortage continues. In the second quarter, domestic fundamentals were relatively healthy, and in line with the further easing of supply pressure from the power curtailment policy in Yunnan Province, it is expected that domestic aluminum ingot destocking will continue. The recovery of overseas consumption continues, and the continued depletion of inventories will support overseas aluminum prices. It should be noted that the National Reserve Bureau mentioned in the National Reserve Bureau to dump storage to stabilize upstream raw material prices. The certainty of aluminum ingot dumping is relatively high. Once the news falls, it will exert obvious pressure on aluminum prices.

Main logic:

(1) On the supply side: In April 2021, the domestic output was 3.25 million tons, a year-on-year increase of 9.9%. Imported 150,000 tons of primary aluminum in April.

(2) On the demand side: the strong real estate demand promoted a small increase in the operating rate of building materials aluminum plants, and the decline in aluminum prices led to a slight rebound in downstream replenishment.

(3) In terms of inventory: The domestic social inventory of aluminum ingots decreased by 40,000 tons from the previous month to 1.02 million tons, and aluminum prices were adjusted to ensure destocking.

(4) Overall: The state once again emphasized the “guaranteed supply and stable price” of bulk commodities, which caused the Shanghai aluminum price to fall. Compared with the impact of aluminum prices on the 2w mark, the current change is that the country’s willingness to regulate and control has increased, and Fed officials have loosened in response to inflation, which is detrimental to commodity prices; but at the same time, it is necessary to pay attention to the recent power shortage on the supply side. The interference rate continues to rise; in addition, the decline in aluminum prices has led to a rebound in downstream purchasing enthusiasm. In other words, the excellent supply and demand pattern of Shanghai Aluminum has not changed substantially. Price control and currency tightening are expected to put pressure on bulls’ sentiments, but Shanghai Aluminum’s better supply and demand side restrained the decline. Aluminum prices have been dominated by wide fluctuations in the near future. The operation focuses on market sentiment to drive short and long opportunities in oversold conditions. 

According to the statistics of the General Administration of Customs of China, China's imports of primary aluminum in April 2021 were 155,600 tons, of which the import volume of tariff number 76011010 was 0.0642 tons, and the import volume of tariff number 76011090 was 154,976 tons. The import volume of primary aluminum in April 2021 increased by 77.13% month-on-month and 2019.18% year-on-year.

Aluminum strip factory: The existing order backlog guarantees that the operating rate in May will remain stable. From the perspective of new orders, a small number of factories report that orders have weakened after June, and the industry's operating rate may have an inflection point after June.

Aluminum foil factories: the start of operations remains stable. Leading large factories are scheduled to produce until July. Small and medium-sized factories have weak bargaining power. Some factories have suspended production, and the overall operating rate may slowly decline.