The aluminum price accelerated in the third quarter of last year, causing the domestic aluminum market to fall into the predicament of loss in the whole industry. Since November last year, domestic electrolytic aluminum plants have been forced to cut output, high-cost production capacity has withdrawn from the market, new expansion capacity has stopped, and supply growth has suddenly dropped. At the same time, the export volume of aluminum products was stable, the social stocks dropped significantly, the supply and demand structure of the aluminum market was reversed, and the aluminum price bottomed out, becoming a more eye-catching variety of basic metals. We believe that under the premise that supply has not recovered and consumption has not deteriorated further, the basic price is good, and aluminum prices will remain strong.
Depressed demand forced alumina production
Since November last year, the large-scale reduction of domestic electrolytic aluminum production capacity has made the excess alumina market worse. The price of alumina fell in a cliff-like manner, with the biggest drop of more than 40% and the lowest hit of 16,24 yuan/ton, which fell below the cost of most domestic production. The huge price gap and high product inventory have forced the alumina plant to cut production. It is understood that alumina plants including Shandong Xinfa, Chinalco Henan, Guizhou Guanglu, Shandong Weiqiao and Jinjiang Group have reduced their production capacity by more than 7 million tons per year. After this adjustment, the alumina market inventory clearing effect gradually appeared, and the alumina price also rebounded. The domestic weighted average price rebounded from the previous 1624 yuan/ton to the current 1661 yuan/ton.
Electrolytic aluminum high-cost production capacity is concentrated
Since the end of 2015, domestic electrolytic aluminum plants have announced production cuts and production suspensions in the context of extremely low prices. Especially in the industry joint meeting held by the Nonferrous Association, the electrolytic aluminum plant said that the new expansion capacity will not be put into production in the past year. Here, we believe that there is a dialectical relationship between the rebound in aluminum prices and the recovery of supply. Since the time node for supply recovery cannot be directly inferred from the price, we use actual research to track supply recovery. It is understood that as of February, the domestic production capacity was about 4.2 million tons / year, and the supply recovery due to price rebound, the new expansion capacity reached about 200,000 tons / year, and the production capacity was about 100,000 tons / year. Overall, the supply recovery level is small and the time progress is slow.
Significant destocking effect
Under the current price situation, we estimate the weighted average profit of the domestic industry at 300-500 yuan / ton. Even so, the domestic electrolytic aluminum production capacity has not yet seen a large-scale restart and new expansion capacity production. Based on the current low-output supply situation, the aluminum market is in short supply in the current period, and the market needs to consume a certain amount of inventory to supplement. According to statistics, in November 2015, the domestic inventories of domestic aluminum ingots totaled more than 1 million tons. After several months of supply reduction, the minimum inventory fell to about 630,000 tons, and the destocking effect was remarkable. It is worth noting that during the Spring Festival, the market entered a period of consumption vacuum, and social stocks increased by 140,000 tons to 800,000 tons after the holiday, but the inventory accumulation was still less than the Spring Festival in previous years.
In summary, under the consensus of slower consumption growth, the effect of supply-side output reduction will continue. We believe that aluminum prices will remain strong in the core operating area of 10,600-11,200 yuan/ton before the large-scale resumption of domestic electrolytic aluminum production capacity or new expansion capacity is put into production.