Strict implementation of environmental protection measures and emission policies in China have resulted in fluctuations in local electrolytic operating capacity and start-ups in Yunnan, Inner Mongolia, Guizhou regions. This has caused a gap in supply and demand of electrolytic aluminium in China. This is e, expected to continue till year-end or beginning of 2022, according to Gu Fengda, director of the research and consulting department of Guosen Futures.
Chinese local media quoted Fengda that Chinese officials and regulatory authority had stepped up their efforts after bulk industrial products broke new highs in May. This has suppressed high-profit industries such as primary aluminium producers and has pressurised aluminium prices.
He added that Shanghai aluminium futures have fallen sharply from the peak of 565,000 lots on May 7 to less than 450,000 lots currently. The reduction of more than 110,000 lots within one month implies long entry and exit.
However, Chen Yujuan an analyst at Huarong Rongda Futures, is of a different opinion and added that the 100,000mt drop will not make much of an impact.
On the macro front, the US seasonally adjusted non-agricultural employment data was lower than expected in May, the US dollar rebounded slightly but remained low, and crude oil prices fluctuated at a high level. In short, despite the pressure from domestic policies and rumours that aluminium prices are impacted due to dumping, the direction of domestic carbon usage has not changed, added Yujuan.
Despite the news related to supply-side production cuts, the demand is stable and LME inventories have fallen sharply. Similarly, Chinese domestic electrolytic aluminium continues to destock, and this is supporting aluminium prices.
“Looking ahead, the supply pressure of the non-ferrous industry in the second quarter is expected to be small, and there is still room for some restoration of consumption. The supply and demand of internal non-ferrous metals will show a tight balance, and the overall price is expected to continue the trend of high and strong oscillations,” Fengda added.
Outlook
Fengda said that in June, the Shanghai aluminium price is expected to fluctuate at a high level which may test the support of CNY18,000/mt. If it falls below this position or further slides to around CNY17,000/mt, it will remain stable. Fluctuations will be in the range of CNY18,000-20,000/mt.
In terms of different regions, the capacity utilization rate in Shandong is 97.61pc, in Xinjiang it is 94.76pc, and 84.47pc in Henan. However, the proportion of production capacity in Guizhou is relatively small. From the perspective of the stability of monthly production capacity, 100,000mt accounted for less than 3pc of monthly production. Overall, the news of Guizhou’s production cut has little impact on the entire electrolytic aluminium industry, said Yujuan.
Fengda added that the environmental protection team plans to reduce the production capacity of primary aluminium producer in Guizhou by 100,000mt as the plant exceeded emission standards.
Shandong and Xinjiang are the two important electrolytic aluminium production areas contributing 37pc of total production capacity. Inner Mongolia is the third, followed by Gansu, Qinghai, Henan, Guangxi, Yunnan, Ningxia, and other places. It occupies 85pc of the national production capacity.
As of April 2021, the monthly output of electrolytic aluminium was 3.35mn mt, which was maintained at a relatively high level.
Yujuan shared that after witnessing sharp fall in mid to late May, Shanghai Aluminum has recently maintained a weak oscillation, but is still at a high level.
He added that on the supply side, alumina prices have risen steadily. Alumina companies have maintained their normal operating levels. The market transactions are dominated by long-term orders. Traders are cautious.
The overall spot transaction volume is relatively small. As the price of alumina continues to rise, the profits of electrolytic aluminium companies have narrowed.
On the demand side, the current real estate industry is in a period of high prosperity, orders from other terminals are also picking up and demand is stable.
Aluminium rod processing fees has declined from the prior week. The power curtailment policy in some parks in the South China market have affected the operation of some profile factories, and the downstream demand for aluminium processing products has decreased. The sentiment of receiving goods is not high, and the impact of the recent epidemic is superimposed, local media reported.
The demand for sheet, strip and foil is still supported.