Stimulated by the further expansion of the scale of electricity curtailment in the China Southern Power Grid, the domestic aluminum metal price once again rushed to the 20,000 yuan/ton mark.
Aluminum prices stand above the 20,000 yuan mark
In August, the China Nonferrous Metals Industry Association released the economic performance of the non-ferrous industry in the first half of the year, showing that in the first half of the year, the average price of aluminum in the domestic spot market was 17,421 yuan/ton, a year-on-year increase of 31.6%. In mid-May, the average aluminum price in the domestic spot market was as high as 19702 yuan/ton, and in late June it adjusted back to 18,735 yuan/ton, a decrease of 967 yuan/ton from mid-May, a decrease of 4.9%.
However, at the end of July, spurred by the further expansion of the scale of power rationing in the Southern Power Grid area, aluminum prices returned to near the May high.
According to data from the business agency, on August 10, the average price of domestic aluminum ingots in the East China market was 1,9903.33 yuan/ton, which was an increase of 0.13% from the average market price of 19,856 yuan/ton at the beginning of the month. Taking the average market price of aluminum ingots at the beginning of the year (January 1, 2021) at 15,726.67 yuan/ton as the benchmark price, it has now increased by 26.43%.
According to global metal network data, the ex-factory price of Shandong Hongqiao aluminum ingots was 20,470 yuan/ton on August 18, an increase of 90 yuan/ton (including 13% value-added tax) on the same day. Guangdong Nanchu’s quotation showed that the spot price of aluminum ingots for remelting on the 18th was 20310-20350 yuan/ton, with an average price of 20330 yuan/ton, and a daily increase of 100 yuan/ton. The Yangtze River non-ferrous metal spot data shows that on the 18th, the aluminum price was 20310-20350 yuan/ton, the average price was 20330 yuan/ton, and the daily increase was 110 yuan/ton.
The price volatility in the futures market is closely related to the spot. Recently, the price of Shanghai Aluminum’s main contract 2109 continues to be above 20,000 yuan/ton. On August 17, the 2109 contract had a maximum offset of 20,575 yuan/ton. On August 18, the main contract closed at 20,190 yuan/ton, a slight decrease of 0.79% on the same day.
Aluminum prices continue to be high, industry companies have considerable profitability, and stock prices have risen significantly.
On August 18, Shenhuo shares (000933) reached a maximum of 14.32 yuan per share in the intraday trading, and the cumulative maximum increase in the past 9 trading days was nearly 50%. The company recently announced that it achieved operating income of 15.511 billion yuan in the first half of the year, an increase of 85.74% year-on-year; net profit of 1.463 billion yuan, an increase of 606.21% year-on-year. The announcement stated that the substantial increase in performance during the period was mainly due to the gradual commissioning of the Yunnan hydropower and aluminum integration project, the sharp rise in electrolytic aluminum and coal prices, and the significant increase in the profitability of the company’s main products.
According to the non-ferrous industry economic performance data released by the China Nonferrous Metals Industry Association in the first half of this year, the regulated non-ferrous metal industrial enterprises (including independent gold enterprises) achieved a total profit of 163.97 billion yuan in the first half of this year, a year-on-year increase (calculated on a comparable basis, the same below) 224.6%, an increase of 35.66 billion yuan from the profit realized in the first half of 2017, an average increase of 6.3% over the four years.
Electricity curtailment superimposed on high costs to support aluminum prices
Recently, the electrolytic aluminum power limit in Southwest China has become stricter. China Southern Power Grid Guangxi Company requires the electrolytic aluminum plants in Guangxi Province to further reduce the power load by 30%. All aluminum plants using China Southern Power Grid need to reduce their current operating capacity by 30%.
According to analysis by Ye Jianjun, an analyst at the Business Club, Guangxi is initially expected to reduce production at an annualized operating capacity of about 270,000 tons at the end of August, and the time for resumption of production is yet to be determined. According to statistics, since 2021, a total of 5 provinces’ electrolytic aluminum enterprises have reduced their production due to power curtailment policies, which have lowered their operating rates. According to published data, the current planned and reduced production capacity reached 1.626 million tons/year, accounting for 3.7% of the nation’s annual production capacity.
Shenhuo previously announced that due to the tight power supply, since May 10, 2021, Yunnan Power Grid Co., Ltd. (hereinafter referred to as “Yunnan Power Grid”) has implemented orderly power supply to electrolytic aluminum enterprises in Yunnan Province. Shenhuo Aluminum Co., Ltd. (hereinafter referred to as “Yunnan Shenhuo”) has greatly reduced the total power supply and consumption load, and was forced to cease operations of 150,000 tons of production capacity. The remaining 600,000 tons of production capacity has also been in a low-load abnormal operation state, and the production efficiency is high. The range is reduced, and there are huge risks in safe production and process control. The remaining 150,000 tons of production capacity originally planned to be launched in the first half of the year also failed to be put into operation as scheduled.
On July 27, Yunnan Shenhuo received a load limit notice again, and the load limit reached 30%, and it was forced to shut down 35 electrolytic cells again. Affected by this load limit, Yunnan Shenhuo’s previous production capacity will shut down 145 electrolyzers, with a shutdown capacity of 200,000 tons, and the production capacity reduced to 550,000 tons, plus the 150,000 tons of production capacity that failed to start as scheduled. The current capacity utilization rate of Yunnan Shenhuo is only 61.11%. According to preliminary calculations, the previous start-up capacity will affect the output of 35,000 tons as of the end of July, and the 800,000 tons business plan formulated at the beginning of the year will not be completed, which will have a significant impact on the operating results of Yunnan Shenhuo.
According to statistics from Baichuan Yingfu, China’s primary aluminum output in July 2021 was 3.241 million tons, with an average daily output of 104,500 tons and an annualized output of 38.1602 million tons; compared with the daily output of 105,900 tons/day in June 2021, a decrease of 14,400 tons/day. In July, a small part of the electrolytic aluminum industry’s production capacity was still slowly advancing, and the previous reduction in production capacity did not resume production as scheduled, and there was no new capacity. In addition, due to the flood in Henan in July, some of the production capacity was shut down, resulting in electrolytic aluminum in the same month. The output has decreased. According to Baichuan Yingfu’s understanding, the previous production cuts in various regions in August may not be able to resume production. According to the current production increase and decrease, the output in August 2021 will be about 3.26 million tons, and the daily chemical output will be about 105,200 tons. Daily output may rise slightly.
Wang Xianwei, an analyst at China Securities Investment Futures, believes that there are two main factors driving the rise of aluminum prices in the near future. One is the expansion of the scope of limited power supply on the supply side, and the market expects that the supply will continue to be tight. Another factor is the increase in electricity costs caused by the lack of electricity. At the same time, the price of alumina has also risen slightly. The obvious increase in the production cost of one ton of aluminum also supports the price.
According to data from Shanghai Iron and Steel Federation, the price of imported bauxite has risen recently. Last week, ocean freight prices have generally risen, and the cost of imported ore has increased. Traders are mostly negotiating with alumina plants, and there have been few recent transactions in the market.
With the increase in the price of imported ore, the domestic ore market is slightly more active than before. At present, Shanxi No.1 diaslumine mine AL: 58%, A/S (aluminum-silicon ratio): 5, the price is 420 yuan/ton (excluding tax), an increase of 20 yuan/ton; Henan No.1 duralumin Mine AL: 58%, A/S: 4.5, and the price is 450 yuan/ton (excluding tax). Guizhou monohydrate diaspore AL: 60%, A/S: 6 medium sulphur ore is 285 yuan/ton. In addition, port inventory has recently shown a downward trend. China’s main port bauxite inventory is 36.04 million tons, a decrease of 530,000 tons from the 36.57 million tons in the previous period. It can be seen that manufacturers are currently more willing to purchase port spot goods.
According to statistics from Baichuan Yingfu, in July 2021, the weighted average tax-included full cost of China’s electrolytic aluminum industry was 13,989.42 yuan/ton, an increase of 179.9 yuan/ton from 1,3809.5 yuan/ton in June 2021, an increase of 1.3% month-on-month and a year-on-year increase of 9.1% . In July 2021, the raw material end continued to rise. The spot price of alumina rose by an average of 29 yuan/ton, and the anode carbon price rose by 75 yuan/ton this month. This superimposed on the increase in electricity prices in some areas, resulting in an increase in the cost of the electrolytic aluminum industry.
Under the guarantee policy or high shocks
The Politburo meeting on July 30 pointed out that it is necessary to do a good job in ensuring the supply of bulk commodities and stabilizing prices, and correct the campaign-style “carbon reduction”. The National Development and Reform Commission formulated and issued the “Management Measures for the Price Index of Important Goods and Services (Trial)”, which will also be implemented on August 1.
According to CCTV reports, for some time, the National Development and Reform Commission has organized and completed the national reserve of various raw materials, and will continue to carry out the reserve in due course. According to the National Development and Reform Commission, there have been two batches of national reserves of copper, aluminum and zinc, totaling 270,000 tons. At present, the two rounds of reserve investment have basically achieved the expected goal, alleviating the pressure on raw material costs of some industries and enterprises.
Wang Xianwei analyzed that the recent performance of the consumer side was slightly weak, and the social inventory of electrolytic aluminum increased slightly, mainly due to the small increase in the recent arrivals. At the same time, the time node for the third dumping of reserves is approaching. If the number of dumps is large, the price will be suppressed. The short-term 2109 contract maintains a high probability of fluctuations in the range of 19800-20500 yuan/ton. It is recommended to focus on the range operation and pay attention to the buying opportunities brought by the dumping of reserves.
According to Aladdin’s analysis, the National Development and Reform Commission issued a notice to deploy all localities to ensure the supply and price stabilization of important livelihood commodities. Although electrolytic aluminum has not been “named”, regulatory measures such as dumping reserves are already being implemented. Due to the conflict between supply and demand in the region caused by production cuts and the epidemic, if aluminum prices soar further, policy control may be further increased and become more precise. Under the constraints of the supply side, the aluminum price still has strong support, but after the aluminum price rises, it is necessary to pay attention to the policy regulation and the phased accumulation pressure after the recovery of logistics. Therefore, we believe that short-term aluminum prices may not have a major breakthrough, and high-level shocks may still be the mainstream pattern.
The China Nonferrous Metals Industry Association also mentioned in the previous meeting that the prices of major non-ferrous metals in the second half of the year showed a trend of high levels of correction. In the medium and long term, with the implementation of policies such as carbon emissions and the improvement of the fundamentals of supply and demand, the long-term arrears of aluminum prices at low levels are expected to be improved. The realized profits in the third and fourth quarters may be slightly adjusted compared to the second quarter, but the realized profits for the whole year are expected to hit a record high.