Another new high in August, aluminum prices rose 4%
On August 27, the average price of domestic aluminum ingots in the East China market was 20,650 yuan/ton, which was 4% higher than the average market price at the beginning of the month of 19,986.67 yuan/ton.
Based on the average market price of aluminum ingots at the beginning of the year (January 1, 2021) at RMB 15,726.67/ton, the benchmark price has increased by 31.31%.
Aluminum prices broke through the 20,000 mark in mid-August, hitting new highs repeatedly.
Electricity curtailment affects production capacity
The proportion of restricted production in Yunnan has increased, and Guangxi, Guizhou, and Inner Mongolia have also entered the ranks of restricted production. The new production capacity is expected to be lowered to less than 1.3 million tons during the year. At the end of July, Yunnan Shenhuo announced that the production limit was upgraded from 25% to 30%, and 35 units were once again forced to stop. The cumulative total stop was 145 units, and the operating capacity was reduced to 550,000 tons. At the beginning of August, Yun Aluminum was not spared. The production shutdown was similar to that of Shenhuo. The aluminum plant shutdown ratio reached 30%, and the operating capacity fell to 1.87 million tons.
Expected factors: It is difficult to resume production in Guangxi and Yunnan in September. It is expected that the supply and demand of electricity during the flood season will be basically balanced in the second half of 2021, and the supply may be insufficient in some periods. Electricity and electricity are expected to still be short in November-December. At the end of the year, Yunnan entered the dry season again, and the restart of the electrolytic aluminum tank was costly. In order to avoid frequent switching, it is expected that the Yunnan electrolytic aluminum plant will not be able to resume production on a large scale from September to October.
Raw alumina price rises & electricity price policy raises aluminum price and cost expectations
The influence of the tightening power restrictions in Guangxi, coupled with weather factors, has continued for several months in the rainy season, which has affected the mining of Guangxi open-pit mines, and the supply of ore has declined. It is reported that the production of two local alumina plants in Guangxi has reduced production, which is a 7.2% decrease in the operating rate of the province before the reduction, and the total annual production capacity has been reduced by approximately 1.1 million tons. The domestic alumina market price in China has maintained an upward trend recently, and the alumina market price has increased within a narrow range. The current quotations and transactions in the northern market are basically centered around 2700 yuan/ton in cash. Traders have been actively entering the market recently, and alumina manufacturers still have a strong willingness to uphold prices. The downstream electrolytic aluminum enterprises mainly execute long-term orders, and their enthusiasm for purchasing alumina spot is not very high.
The rise in the price of raw material alumina is mainly due to factors such as coal shortage and power curtailment, and the cost of electrolytic aluminum continues to rise.
On August 27, the National Development and Reform Commission issued a notice on improving the step-by-step electricity price policy for the electrolytic aluminum industry. It is proposed that the tiered electricity price grading and price increase standards will be improved, which clearly prohibits the introduction of preferential electricity price policies in various regions. All localities must strictly implement the national electricity price policy, prohibit the implementation of preferential electricity prices for the electrolytic aluminum industry, and organize special transactions in the electrolytic aluminum enterprise power market. Those that have been implemented and organized should be cancelled immediately. It is strictly forbidden to introduce preferential electricity price policies into the assessment and assessment of the responsibility of the provincial people's government for energy consumption dual control targets.
In addition, the National Development and Reform Commission also proposed to encourage electrolytic aluminum enterprises to increase the use of non-aqueous renewable energy sources such as wind power and photovoltaic power generation, and to reduce fossil energy consumption. The non-aqueous renewable energy consumed by electrolytic aluminum enterprises accounts for more than 15% of the total electricity consumption, and is not less than the incentive value of the non-hydropower consumption responsibility weight of the province (autonomous region, municipality) in the previous year, each increase in the proportion 1 percentage point, the tiered price increase standard is correspondingly reduced by 1%.
Aluminum ingot import window opened, downstream aluminum exports increased year-on-year
In July 2021, the import of electrolytic aluminum was 179,000 tons, a month-on-month increase of 13.29%. In terms of different countries, 105,300 tons and 33,800 tons were imported from India and Russia, accounting for 59% and 19% of the total. From January to July, domestic imports totaled 921,800 tons, a cumulative year-on-year increase of 165.86%.
The Shanghai-London ratio fluctuates and strengthens. The aluminum ingot inventory in the Shanghai Free Trade Zone is in the range of 110,000-120,000 tons, and the port inventory data has increased.
In July 2021, the export of unwrought aluminum and aluminum products was 469,000 tons, and the cumulative export from January to July was 3.085 million tons, a cumulative year-on-year increase of 12.7%. The demand for foreign aluminum materials is obviously strong, but the average monthly export volume is expected to remain at the level of 450,000 tons, mainly due to factors such as high ocean freight and frequent international trade frictions that inhibit export orders.
In August, downstream processing companies started operations and took the lead in slowing down and then rising
In early August, some aluminum processing enterprises in Zhengzhou and Luoyang, Henan Province received a notice from the Electric Power Bureau of their jurisdictions that large industrial enterprises limited electricity by 50% depending on the situation, and all industrial enterprises below ten kilovolts stopped production, which is expected to last for three weeks or more.
Downstream processing companies took the lead in starting operations. Leading aluminum processing companies fell 0.6% to 67.8% in the second week of this month. Henan’s peak power rationing once again led to a weaker operating rate. In terms of aluminum material category, aluminum sheet, strip and foil companies have cut production due to insufficient power supply. At the same time, due to the Zhengzhou epidemic, transportation has been blocked, and the willingness of foreign vehicles to go to the epidemic area is extremely low.
Leading aluminum processing companies increased their weekly operating rate in the third week of this month by 0.5% to 68.3%. In terms of aluminum category, high aluminum and silicon prices have a greater impact on aluminum profiles, primary alloys and cable companies. The skyrocketing cost of raw materials has reduced the profits of processing companies. Relatively speaking, large companies have done better orders and risk prevention measures. The impact is relatively small for small and medium-sized enterprises, and aluminum cable companies have stable order schedules. The power curtailment in Henan has eased. The operating rate of aluminum strips rebounded to 80%, and the operating rate of aluminum foil remained stable. As aluminum prices rose, some aluminum foil factories indicated that they would increase processing fees again.
The State Reserve sells 70,000 tons in the third batch
According to the 2021 announcement No. 2 of the State Bureau of Grain and Material Reserves, it is decided to start the third batch of national reserves of aluminum, zinc, and copper in 2021 in the near future. The bidding period is 9:00-12:00 and 13:00-18:00 on September 1st. If there are special circumstances that need to change the time or stop the bidding, further notice will be given.
The third batch of total sales reserves is 70,000 tons of aluminum, 50,000 tons of zinc, and 30,000 tons of copper.
Outlook is expected
Domestic demand is gradually coming out of the off-season period, which is positive for aluminum prices. The cost and power curtailment have led to a reduction in production capacity, and the supply and cost sides are more favorable for aluminum ingot prices. At present, the support of aluminum prices is formed, but basically the current prices are relatively high, the destocking of social stocks is weakening, and the market game is intensified.
Recently, the price of aluminum ingots is still mainly operating around 20,000 yuan/ton. On the whole, the short-term downside risk is weakened, and the main operation is still maintained at a high level.
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