Market Review

At the beginning of the month, the aluminum price hit 20,000 yuan/ton. In the middle of the month, the regulatory authorities frequently sounded. The aluminum price plummeted. At the end of the month, due to the expansion of Yunnan’s power shortage and the performance of de-stocking, aluminum prices began to fluctuate after a concentrated adjustment. A brief overview, aluminum prices plunged in May, the main driving force came from the cooling of macro policy control and the support of supply and demand fundamentals. With the coexistence of longs and shorts, aluminum prices have no clear direction in the short term.

In early May, aluminum prices hit another 12-year high. Various domestic consumption data recovered during the May 1st holiday. Together with the overall performance of the optimistic outlook for economic recovery under the loose monetary policy abroad, the aluminum price linearly rose above the 20,000-mark after the holiday, returning to near the high point in early March 2008. It is not just aluminum. Since the beginning of this year, the prices of thermal coal, iron ore, copper and other commodities have hit record highs. Processing and manufacturing companies are suffering. The successive price adjustments of terminal consumer products such as air conditioners and refrigerators have attracted widespread attention from all walks of life.

In mid-to-late May, the supervisory authority frequently spoke. The National Standing Committee stated three times in a row that it would guarantee the supply of commodities and stabilize prices, and clearly stated that it would be necessary to curb unreasonable increases in commodity prices, and strive to prevent transmission to consumer prices. The Development and Reform Commission and other relevant departments have successively sold products for commodities. Prices have cooled, and aluminum prices have fallen by RMB 2,000 per ton under the anticipation of regulation, and Shanghai Aluminum once fell below the 10,000 marks.

After the concentrated callback, the support of supply and demand fundamentals began to appear: on the one hand, due to insufficient water storage and inflow of hydropower in Yunnan, Yunnan, the Pearl River Delta, and Guangxi were once again short of electricity, and electrolytic aluminum and processing and manufacturing enterprises entered the off-peak use. The status of electricity, production cuts and production shutdowns still show signs of gradual expansion, and supply tightening is expected to heat up. On the other hand, since May, the aluminum-to-water conversion rate has been steadily rising, and the mid- and downstream consumption has been steadily increasing. Under this situation, the social inventory of aluminum ingots fell to less than one million tons, and Shanghai Aluminum's registered warehouse receipts fell simultaneously, which also played a certain role in supporting aluminum prices. With the emergence of fundamental support, the psychological expectations of macroeconomic control have also faded. In late May, aluminum prices entered a range-bound state of fluctuations, creating a dilemma between the ups and downs.

As of May 31, the mainstream domestic electrolytic aluminum price of ALD was 18740-18780 yuan/ton in East China, down 60 yuan/ton from the end of last month, and 18900-18940 yuan/ton in South China, up 100 yuan/ton from the end of last month.

This month, London Aluminum has fluctuated widely at high positions in the past three years. In early May, driven by the improvement of consumption data during the May 1st holiday in China and the continued monetary easing policy atmosphere of most central banks around the world, London Aluminum continued to attack, breaking through the US$2,600 mark and returning to near the high level at the beginning of 2018. In mid-May, out of concerns about possible regulatory measures introduced by Chinese regulators, London Aluminum surged and fell simultaneously, breaking through US$2,400 at a minimum. However, under the combined effects of the global economic recovery, China’s “dual-carbon” goal and Yunnan electrolytic aluminum enterprises’ electricity curtailment and production reduction, London’s aluminum supply is still expected to be tightened. While import premiums have risen steadily, aluminum prices have begun to stop falling. Rebound. On the whole, London Aluminum showed an "N" trend this month, and China's import window was closed again at the end of the month.

Aluminum Prices

Data Source: SHFE, Changjiang Spot Market

Supply

China's aluminum production in April was 3,273,600 tons

Statistics from ALD show that China's electrolytic aluminum production in April 2021 was 3.273619 million tons, an increase of 10.75% year-on-year, and the month's capacity utilization rate was 94.90%. On the one hand, the dual control policy of energy consumption in Inner Mongolia in the first quarter did not have a major impact on the production of electrolytic aluminum enterprises in the leagues and cities, and the total output in the region returned to normal levels; second, the resumption of production of some projects in Guangxi, Gansu, Henan and other places was progressing steadily, driving the average daily output within the month to maintain a high of 109,000 tons.

China’s Aluminum Output

Data Source: Aladdiny（ALD）

Demand

Terminal consumption of aluminum products turned from prosperous to weak in May

On the basis of the net import of primary aluminum of more than 150,000 tons in April, the social stock of domestic aluminum ingots has fallen by more than 150,000 tons to less than one million tons, suggesting that domestic electrolytic aluminum demand will continue to be released this month. According to research conducted by ALD, in the process of rising aluminum prices, the mid- and downstream links are dominated by rigid demand purchases, and there are few hoarding behaviors. After the plummet of aluminum prices in the middle and late ten days, the intensity of downstream orders has increased significantly, whether it is Industrial profiles are still construction profiles, or sheet and strip foil manufacturers, and downstream orders are relatively abundant. During our visit and investigation, aluminum rod, sheet, strip, and wire rod companies in Guizhou, Guangxi and other places plan to increase their demand for aluminum water. It should be noted that due to different settlement methods, after the centralized adjustment of aluminum prices in mid-to-late May, individual processing companies temporarily reduced their aluminum purchases. and the rebound in social inventories also shows this pressure. In addition, judging from the latest PMI data, new orders, on-hand orders and export orders have all dropped significantly, indicating that demand has shown signs of weakening from the previous month.

In terms of real estate, overall, the growth rate of real estate investment has returned to a high level. From January to April this year, my country's real estate development investment was 4,024 billion yuan, a year-on-year increase of 21.6%, far exceeding the growth rate of 7% in 2020 and even exceeding the growth rate of 9.9% in 2019. Behind the growth of real estate investment are the hot sales scene in the real estate market and the steadily rising housing prices, which has strengthened the expectation of rising housing prices and the confidence of developers in acquiring investment land. Relevant agencies predict that with the gradual opening of centralized land supply in major cities in April, the utilization rate of funds available for real estate developers will pick up, and they will continue to increase financing methods other than self-raised or pre-sale loans. Therefore, real estate investment is still expected to remain resilient during the year, and it is expected that the growth rate of real estate investment in 2021 is still expected to be around 7%.

It should be noted that although the resilience of real estate investment is good at the moment, it is affected by the “three red lines” and the “new regulations on the concentration of real estate loans of commercial banks” that were successively promulgated at the end of last year. Due to the illegal inflow of loans and consumer loans into the property market, the growth rate of real estate investment in the second half of the year may slow down to around 5%.

In terms of automobiles, according to the statistical analysis of the China Association of Automobile Manufacturers, in April 2021, the production and sales of automobiles were 2.234 million and 2.252 million, respectively. Compared with the same period in 2019, production and sales increased by 8.7% and 13.5% year-on-year. The automobile market continued to be stable. Good development trend. The overall performance of the production and sales of new energy vehicles is still better than that of the industry. The monthly production and sales have remained above 200,000, and the production and sales continued to break the historical record of the month; the export of automobiles also performed well this month, with the export volume exceeding 150,000 in the month, setting a new record high.

It should be noted that the current global shortage of chip supply and the rising prices of raw materials such as steel are affecting the revenue and profits of the auto industry. Coupled with the uncertainty caused by the epidemic, many industry insiders have stated that the auto industry may have positive growth in 2021, but there will be no substantial growth. Experts said that the lack of chips in the automotive industry is expected to be significantly improved by the end of the year.

Supply Demand Balance

ALD expects that the output of primary aluminum in May will be 3.379 million tons, the net import will be 150,000 tons, the consumption will be 3.69 million tons, and the theoretical supply shortage will exceed 160,000 tons that month.

In terms of supply, as the scale of electrolytic aluminum enterprises in Yunnan has further expanded their production cuts and shutdowns, new projects in Guangxi have been temporarily put into operation, and the shrinkage of electrolytic aluminum supply will gradually manifest in the later stage. Based on the process of extracting molten aluminum and the strong import expectations, the supply In the short term, it may increase instead of decreasing. In terms of demand, the social inventory of aluminum ingots showed signs of recovery at the end of May, and the amount of aluminum ingots began to decline, suggesting that terminal demand began to weaken from the previous month. In addition, due to the sharp appreciation of the renminbi exchange rate this month, export orders have dropped significantly, and import orders have rebounded from the previous month. Under the overall performance, it is expected that the domestic electrolytic aluminum market may show a divergence of supply growth and demand decline in the short term.

Aluminum Supply and Demand Balance

Data Source: Aladdiny（ALD）

Inventory Analysis

Aladdiny's (ALD) survey of national aluminum ingot inventory data shows that as of the end of May, the total social inventory of aluminum ingots in major regions was about 958,000 tons, a cumulative drop of nearly 160,000 tons from the end of the previous month.

The data shows that after 3 months, the social stocks of aluminum ingots in major domestic regions have returned to less than one million tons, and the weekly de-stocking rate has expanded month-on-month. According to our research and understanding, there are two main reasons for the expansion of the social inventory of aluminum ingots this week: first, aluminum prices have fallen sharply since the middle of the year, the mid-stream and downstream receiving efforts have increased, and the amount of aluminum ingots from sample warehouses has also increased; second, Due to the shortage of electricity in Yunnan, the volume of arrivals in South China has decreased. At the same time, due to the further increase of the aluminum water conversion rate of upstream aluminum enterprises, the month-on-month aluminum ingot products have also declined, which also provides support for the later destocking of aluminum ingots.

Capacity Analysis

ALD data shows that in May 2021, China's electrolytic aluminum operating capacity was 39.911 million tons, an increase of 8.89% year-on-year and a month-on-month decreases of 0.24%. As of the end of May, the completed production capacity was 42.801 million tons, and the electrolytic aluminum operating rate in the month was 93.25%. According to data from provinces and cities, the operating capacity of Yunnan and Inner Mongolia decreased month-on-month, especially in Yunnan. According to our understanding, due to insufficient water storage and inflow of Yunnan hydropower stations since the flood season this year, Yunnan electrolytic aluminum enterprises have begun to implement load reduction requirements and shift peak production. According to the latest feedback from sample companies, the current production capacity affected by the lack of power has exceeded 20%, and the scale of the impact is still showing signs of further expansion. In addition to the Yunnan area, due to the same shortage of power supply, the start-up plan of new projects in Guangxi has also been affected, but the scale is relatively limited.

For the later stage, on the one hand, attention will be paid to the rainfall situation in Yunnan, and the dam of the Baihetan Hydropower Station, the largest hydropower station under construction in the world, has been poured to the top. The goal of achieving the first batch of generating units before July is expected to be completed. Can it be relieved by then? Regional electricity consumption is tight. On the other hand, since May, projects such as Hengkang in Shanxian and Zhongrui in Gansu have steadily promoted the resumption of production. In addition, with strong import expectations and the withdrawal of aluminum during the shutdown of the electrolytic cell in Yunnan, the supply of aluminum ingots has increased. Inventory will increase instead of falling, and the phased supply pressure will still be reflected.

Cost

The monthly average cost of electrolytic aluminum continued to move up slightly in May

According to the calculation of the ALD cost calculation model, the weighted average full cost of electrolytic aluminum nationwide in April 2021 is 13,763 yuan/ton, a slight increase of 57 yuan/ton from April (the price of raw materials uses the average price during the purchase cycle, not the spot price), the three major cost items all increased slightly.

The proportion of the cost of aluminum

In terms of cost structure, the weighted average of the production cost of electrolytic aluminum in the national aluminum plants is based on the proportion of grid electricity and self-provided electricity of electrolytic aluminum enterprises in various regions, and the proportion of electrolytic aluminum operating capacity in each region in the country. The calculation result is that the cost of electricity accounts for 32%. The cost of alumina accounts for 36%, the cost of anodes accounts for 15%, and the other accounts for 17%.

The cost of aluminum may continue to rise slightly in June 2021

In the later period, from the perspective of the three main cost components, the domestic alumina market's supply and demand and costs were jointly promoted in May. Market-making transactions and rigid-demand transactions appeared staggered. The liquidity of the spot market improved significantly, and transaction prices moved up significantly. Under the blow of macroeconomic regulation and control, the price of thermal coal experienced a significant correction this month. However, due to the advent of the peak of electricity consumption, the supply of coal and electricity is still tight, and coal prices will remain relatively high in the short term; anode prices will continue to rise driven by the cost of coal pitch. Shandong mainstream quotes continued to rise by more than 200 yuan in June. Comprehensive assessment, we believe that the overall production cost of the electrolytic aluminum industry still has a slight upward trend.

The theoretical profit level of the aluminum market hit a new high in May

ALD calculated the average cost per ton of aluminum for each aluminum plant using the weighted average cost of the grid power and self-provided power used by each aluminum plant. The statistics of all aluminum plants totaled 39.891 million tons of operating capacity and all achieved a lucrative profit in the industry. State, the overall profitability has reached a new high in several years.

From the perspective of the distribution of production costs, the main cost range is 13500-14000 yuan/ton, accounting for nearly 50%; followed by 1,3000-13500 yuan/ton, accounting for about 26%; the cost is within 13,000 yuan/ton The production capacity accounted for about 4%, and the production capacity with a cost of 14,500 yuan/ton or more accounted for nearly 8%.

China's Aluminum Cost and Revenue

Data Source: Aladdiny（ALD）

Market Outlook

At present, the main contradiction that plagues the trend of aluminum prices comes from the comparison of policy control and fundamental support: at the policy level, on May 26, the State Council executive meeting named the commodity for the third time, and proposed multiple measures to help small and micro enterprises and individual industrial and commercial households respond. The impact of the price increase of upstream raw materials, use market-oriented methods to guide the upstream and downstream supply chain to stabilize the supply of raw materials and coordinate production and sales to ensure supply and price stability, and combat hoarding and price hikes. Fundamentally, the power shortage problem in Yunnan is unlikely to get better in a short time. If electrolytic aluminum companies continue to reduce and stop production until the end of June or even July, the supply-side reduction will be reflected. Although import expectations are strong and export orders decrease after the RMB exchange rate rises, the inventory of aluminum ingots, which is the subject of pricing, will continue to be depleted. To sum up, after nearly two weeks of concentrated adjustments, the short-term may enter an interval shock pattern, with a shock interval of 1,8000-19,000 yuan/ton, and the large fluctuations are temporarily still stimulated by the news.

Prices

Capacity

Output