Aluminum supply and demand pattern is difficult to improve

From the perspective of supply and demand and inventory pressure, it is expected that the peak season effect will hit a "discount", at least until the end of March, seeing no hope of aluminum prices going up, and Shanghai aluminum will still fluctuate at a low level.

Cyprus again detonated the European debt crisis The Cyprus Parliament finally rejected the controversial bank deposit tax proposal on March 19th, that is, it refused to impose tax on bank deposits as a condition of international aid. Despite meeting market expectations, the country’s bankruptcy and the risk of exiting the euro area are further consolidated. The European Central Bank warned that if Cyprus fails to reach a new bailout plan within a limited time, it will cut off its financial assistance to the country.

Regardless of whether the bill passed or not, the long-suspended European debt crisis has once again surfaced. More and more countries in the euro area have a debt crisis. The aid scheme is contrary to the market will and the cost is getting higher and higher. This will increase the probability of the occurrence of the “Black Swan” incident and increase systemic risks. The recovery of the real economy in the euro zone and the debt crisis have been further aggravated, which will further aggravate the region’s anxiety and even drag the recovery of the global economy.

The Fed's policy statement is nothing new. The Fed’s policy statement announced on the 20th stated that although the economy has recovered moderately and the job market conditions have shown signs of improvement, the U.S. unemployment rate is still at a high level. As long as the unemployment rate is higher than 6.5% and inflation is controlled, the country’s monetary easing policy will remain unchanged. Fed ** Bernanke maintained his usual loose argument in his recent speech. He believes that the Fed’s risk of purchasing bonds is controllable, and only if various economic indicators continue to improve will it consider adjusting the scale of debt purchase.

From the Fed’s policy statement and Bernanke’s speech, it can be seen that the Fed will still maintain a loose monetary policy, and the low interest rate policy plan will be postponed until 2015 until 2013. Therefore, in the short term, the Fed is unlikely to end QE quantitative easing policy in advance.

However, due to the recent significant improvement in the U.S. economy, in particular the recovery in employment, real estate, and retail sales will undoubtedly increase the power of the Fed’s internal hawks. The haze that the Fed may end its QE policy ahead of schedule will always be overshadowed by the metal market. In addition, the US economic recovery has led to a strong rise in US stocks, which has caused it to record highs.

Oversupply of supply and demand is difficult to improve The imbalance in supply and demand of the global aluminum market is directly reflected in the increase in inventory. Global aluminum inventories rose by 35,000 tons in January to 2.31 million tons, of which 35,000 tons were all increased in Asia. In January, Asian aluminum inventories accounted for 481,000 tons, accounting for 20.8% of global aluminum inventory. In China, as of February 25, the domestic stockpiles of aluminum ingots in the four regions had reached 1.231 million tons, a dramatic increase of 271,000 tons before the Spring Festival, and a new record high. As of March 1, the Shanghai Aluminum Inventories of the Shanghai Stock Exchange soared to 482,408 tons, which was more than five times higher than at the end of September 2011.

In terms of supply, global primary aluminum production in January this year increased by 5.77% year-on-year to 3.667 million tons. The output of primary aluminum in the world except China was down by 1.5% year-on-year, while in January China's primary aluminum production increased by 16% year-on-year to 1.76 million tons. This shows that the increase in aluminum production in China is the main reason for the global aluminum supply surplus. In addition, imports of bauxite and alumina from China increased by 67.59% and 9.28% respectively in January compared with the same period of last year, and bauxite imports hit a monthly high of 8 months. Sufficient supply of upstream raw materials led to the smooth progress of electrolytic aluminum production. During the year, with the western electrolytic aluminum projects being put into operation one after another, the eastern electrolytic aluminum companies did not have the will to withdraw from the market, and the problem of excess capacity would become more severe.

On the demand side, consumer spending in the spring and summer season is expected to be the key factor limiting the decline in aluminum prices. However, currently, there are signs of a shift in this factor, among which the domestic real estate control policy has tightened the expectations of the recovery of the aluminum market. At the same time, aluminum prices have risen more or less, and the spread of ** premiums has continued to expand. Downstream processing companies have fallen to 14,600 yuan/ton in aluminum prices, and their willingness to purchase is still low.

High Inventories Consistent with Upward Pressure on Aluminum Prices While some domestic companies recently implemented a plan to reduce production, the overall size will reach 900,000 tons, but in addition to some backward production capacity, the two aluminum plants in Guangxi are mainly due to electricity price reduction plan, other regions suffer from Local protection without production cuts. Even if relevant policies are introduced to speed up the integration of aluminum-industry enterprises and eliminate outdated production capacity, we do not expect this year's production scale to increase by more than new capacity. The result of “mergers and reorganizations” will only be re-allocation of weights—the weight of the western region will increase, while other costs will be higher. The weight of the region is relatively reduced. Therefore, overall, aluminum production this year will continue to increase. The downstream housing market is also not optimistic. The introduction of the new "State Five" policy has not only inhibited the real estate demand, but also weighed on real estate investment. We expect that the domestic oversupply situation this year will not change, and in the long term it will not be conducive to aluminum prices going up.

In the short term, the output of electrolytic aluminum continues to increase. As the output of primary aluminum decreased by 2.8% from the previous month to 1.73 million tons in February, the total output from January to February was 3.51 million tons, an increase of 15% over the same period of last year. Years later, due to the normal operation of upstream electrolytic aluminum enterprises and the late start-up of downstream enterprises, together with the transportation of aluminum ingots accumulated in the western region to the eastern region in the previous years, domestic aluminum ingot stocks increased significantly. According to the data, as of March 15, aluminum ingot stocks in Shanghai, Wuxi, Hangzhou, and South China Sea increased by 322,000 tons to 1.282 million tons. Even if the State Reserve Bureau collects and stores 300,000 tons, the market will also face a long-term destocking pressure.

In summary, after digesting multiple negative factors, aluminum prices will face technical corrections and cost support in the short term, but its rebound will hardly turn downward. Due to the lack of global economic growth and further cooperation with monetary policy, China's primary aluminum supply and demand imbalance continues.