In May, Shanghai aluminum prices showed a trend of first falling and then rising, Shanghai aluminum open interest remained at a low level, and the market had a strong wait-and-see atmosphere. As the country resumes work and production, aluminum prices may rebound in stages. However, in the second half of the year, domestic electrolytic aluminum supply will increase and overseas aluminum demand will weaken. It is expected that aluminum prices will bear the burden.
Overseas fundamentals are strong
Lun Aluminum’s short-term support is still there
Since the second quarter, there have been many overseas macro events, which have affected aluminum prices. The decline in aluminum prices in London is greater than the decline in aluminum prices in Shanghai.
The Federal Reserve’s “hawkish” monetary policy has pushed the dollar to a near 20-year high. In the context of high global inflation, the Fed’s rapid tightening of monetary policy has cast a shadow on the global economic outlook, and it is expected that overseas aluminum consumption may decrease in the second half of the year. In contrast, European aluminum smelters cut output earlier this year due to rising energy prices. The deteriorating geopolitical situation also affects the supply of electrolytic aluminum. At present, Europe has imposed further sanctions on Russia’s energy, and it is difficult to reduce short-term energy prices. European aluminum will maintain a high cost and high premium.
The London Metal Exchange (LME) electrolytic aluminum inventory is at a low level in 20 years, and there is a possibility that it will continue to decline. It is expected that there is little room for a short-term decline in aluminum prices.
Domestic epidemic improves and recovers
This year, Yunnan encouraged the implementation of green aluminum production capacity. At the beginning of this year, aluminum enterprises in Yunnan entered the stage of accelerated production resumption. Data show that the domestic electrolytic aluminum operating capacity exceeds 40.5 million tons. Although this year’s peak of electrolytic aluminum production capacity growth has passed, more than 2 million tons of new and resumed electrolytic aluminum production capacity will be started from June. Customs data shows that since the beginning of this year, my country’s electrolytic aluminum has been in a balanced state of import and export. Compared with last year’s average monthly net import of more than 100,000 tons, the reduction in electrolytic aluminum imports has eased the pressure on supply growth. After June, the monthly supply of electrolytic aluminum will gradually exceed the same period last year, and the long-term supply will increase.
In May, the epidemic in East China eased, and the transportation market improved. The comprehensive inventory of aluminum ingots and rods maintained a weekly decline rate of 30,000 tons, but the decline was still weak compared with the same period in recent years. At present, the real estate sales data is not good, and it is necessary to wait for the effect of the implementation of local policies. The consumption and export growth of aluminum in emerging fields accelerated. From January to April, the newly installed photovoltaic capacity in China increased by 130%, the production and sales of new energy vehicles increased by more than 110%, and the export of aluminum products increased by nearly 30%. As my country has successively introduced policies to stabilize growth and protect people’s livelihood, the domestic economic outlook will be optimistic. It is expected that domestic aluminum consumption is expected to maintain positive growth this year.
In May, my country’s manufacturing PMI was 49.6, still below the critical point, with a month-on-month increase of 2.2%, indicating that the impact of the epidemic on the economy has weakened. The comprehensive inventory value of aluminum is not high, and the inventory consumption ratio is at a low level in recent years. If domestic aluminum consumption can achieve rapid growth, aluminum prices will be stimulated in stages. However, under the condition that the growth of electrolytic aluminum supply is relatively stable, if the aluminum price in Shanghai is to achieve a substantial increase, it needs to have a sustained and strong destock performance. And the current market is widespread on the electrolytic aluminum forward surplus concerns, may limit the height of aluminum prices rebound.
In the short term, Shanghai aluminum prices will fluctuate between 20,000 and 21,000 yuan per ton. In June, the price of 21,000 yuan per ton of electrolytic aluminum will be an important point for the long and short sides of the market. In the medium term, Shanghai aluminum prices have fallen below the long-term upward trend line formed since 2020, and it is expected that the bull market of electrolytic aluminum in the past two years will come to an end. From a long-term perspective, overseas countries have the risk of economic recession brought about by the tightening of monetary policies. If the terminal demand for aluminum enters a downward cycle, there is a risk of falling aluminum prices.
Post time: Jun-22-2022
