In the first half of 2022, there were many fundamental and macro disturbances. Under the resonance of multiple factors, Shanghai Aluminum walked out of the inverted V market. Overall, the trend in the first half of the year can be divided into two stages. The first stage is from the beginning of the year to the first ten days of March. The domestic supply is tight due to the environmental protection production restrictions of the Winter Olympics and the Baise epidemic. Overseas aluminium profile suppliers has been greatly affected by the conflict between Russia and Ukraine. On the one hand, concerns about production cuts in Europe have increased, and on the other hand, the cost center has risen due to rising energy prices in the context of the conflict. Superimposed on the drive of the London nickel squeeze in early March, Shanghai Aluminum has continued to rise since the beginning of the year, reaching a peak of 24,255 yuan / ton, a four-and-a-half-month high. However, since late March, although it has entered the traditional peak season of demand, under the impact of epidemic control in many places, the expectation of a significant recovery in demand has not materialized, and the pressure on the supply side has gradually emerged. The Fed’s monetary policy continued to tighten, and the market’s concerns about a global economic recession put significant pressure on the aluminum price.
The supply side cuts production and resumes production, the upward momentum turns to downward pressure
The aluminium profile manufacturers in china side has been affected by the production reduction event in the first quarter. At the beginning of the year, the production was limited due to the Winter Olympics, and the large-scale reduction of alumina production at the raw material side was also suppressed. In February, the epidemic in Guangxi led to the expansion of the reduction of electrolytic aluminum production in Baise. The Baise region is one of the main producing areas of electrolytic aluminum in China. The epidemic has caused the market to worry about supply. From late February to March, affected by the conflict between Russia and Ukraine, the overseas supply side was tight, and the market began to trade the probability that Rusal was affected by sanctions and the probability of production reduction stimulated by high energy costs in Europe. Under the influence of multiple internal and external factors, the performance of aluminum supply in the first quarter has always been tight, and aluminum prices have gained upward momentum.
Since the second quarter, the performance of the supply side has reversed. The production limit of the Winter Olympics and the impact of the Baise epidemic have ended. The supply side has gradually resumed production, and the resumption of production in Yunnan has shown signs of speeding up. In the follow-up, as new production capacity continues to be put into production, electrolytic aluminum Production is gradually increasing. Although the foreign supply side has always been affected by the energy crisis, the production cuts in Europe are mainly concentrated in the fourth quarter of 2021 and the first quarter of 2022, and there will be no new production cuts in the future. Therefore, starting from the second quarter, the support brought by the overseas supply side will begin Weakening, and with the continuous release of domestic electrolytic aluminum production capacity, the pressure on aluminum prices from increased supply has gradually emerged.
The traditional peak season was intercepted by the epidemic, and the demand in the first half of the year remained weak
Although the demand at the beginning of the year was weak due to factors such as poor real estate data and the off-season demand, the market had strong expectations for the peak season of demand, which supported the upward trend of aluminum prices. However, the outbreak in Shanghai began in March, and outbreaks appeared in many parts of the country. The epidemic prevention and control restricted transportation and downstream construction. Moreover, due to the long duration, the entire peak demand season was affected by the epidemic, and the characteristics of the peak season did not appear.
Although in the late stage of the epidemic, the country has successively introduced a number of favorable policies to stimulate the recovery of consumption after the epidemic, which has strengthened the market’s confidence in the recovery of demand and boosted aluminum prices. However, from the perspective of actual performance, although the downstream consumption of aluminum in June has improved compared with the previous period, the improvement is not obvious, and the performance of real estate has always been poor, which has dragged down the recovery of demand. Against the background of strong expectations and weak reality, it is difficult to support the continued rise of aluminum prices. In addition, as the off-season approaches, demand may hardly improve significantly.
Aluminum inventories in Shanghai and London continue to decline, and there is certain support below aluminum prices
In the first half of this year, the aluminum inventory in London was in a state of decline as a whole, and it rebounded for a while, but the overall downward trend has not changed. The aluminum inventory in London has dropped from 934,000 tons at the beginning of the year to the current 336,000 tons. There are signs that inventory levels have fallen to the lowest level in more than 21 years. From the beginning of the year to the beginning of March, the overall aluminum inventory in Shanghai increased, reaching a ten-month high on March 11, and then the inventory started a downward mode, and the latest inventory fell to a new low in more than two years. On the whole, aluminum inventories in Shanghai and London are currently in a state of continuous decline, and the continuous decline to new lows has certain support below the aluminum price.
The risk of global economic recession increases, and the pessimistic macro atmosphere puts pressure on aluminum prices
This year, the macro pressure has been increasing. The conflict between Russia and Ukraine that started at the beginning of the year has intensified. Energy prices have soared, which has led to the gradual deterioration of overseas inflation. The Fed’s stance has gradually become hawkish. Entering May and June, data showed that overseas inflation was high. Against this background, the Fed The sound of raising interest rates and shrinking the balance sheet is more hawkish, and the expectation of a global recession has weakened the market atmosphere, and non-ferrous metals are under pressure. Especially in late June, the Federal Reserve decided to raise interest rates by 75 basis points and the progress of further interest rate hikes in the future, which caused market sentiment to collapse, and the market was worried about the risk of economic recession.
Regarding the future trend, the macro environment may still not be optimistic. The US dollar index is running at a high level. The latest U.S. CPI in June recorded the largest year-on-year increase in more than 40 years, but Biden said that inflation data is in the past tense. is expected to fall back. The Fed’s attitude to control inflation is becoming more and more determined. In July, the Fed may continue to raise interest rates by 75 basis points. The market is still worried about the global economic recession. The pessimism of macro sentiment has a greater impact on future aluminum prices, and may continue to be under pressure in the short term.
From a fundamental point of view, the demand side has entered the off-season, short-term consumption may hardly see a significant improvement, and the supply side output continues to increase. Although the aluminum price has fallen to the cost line, there is still no news of production reduction. If the loss of electrolytic aluminum plants fails to cause a slowdown in production increase or production reduction, the decline in fundamentals will continue to remain weak, and aluminum prices will continue to drop, and continue to test for cost support until the production reduction brings new driver.
Post time: Aug-08-2022
