After the big fall, it is not advisable to be overly bearish on aluminum prices

The National Development and Reform Commission has struck a blow at coal prices, triggering a sharp adjustment of coal commodities in the early stage. Short-term electrolytic aluminum cost support weakened, bullish enthusiasm declined, the market began to pay attention to the weak demand ignored in the early stage, the domestic accumulation of pressure on the price, aluminum may take time to adjust. However, the decline in coal prices is difficult to quickly transmit to the supply of aluminum, and if the supply of coal cannot be effectively replenished, the fourth quarter still faces the risk of expanding the scale of production cuts. The power curtailment of major consumption places such as East China has begun to slow down, and the decline in aluminum prices is conducive to boosting demand, and it is expected that there is still room for the social library to fall after the middle of the fourth quarter, which will also limit the adjustment space of aluminum prices.

Why did Shanghai aluminum fall sharply

Since last week, the price of Shanghai aluminum has rebounded sharply, and the main force has continued to fall from the historical high near 24,700 yuan / ton, and the low point has touched the first line of 20,500 yuan / ton, a drop of as much as 17%. There has been a sharp decline in a short period of time, and we believe that it mainly stems from the following two points of logic. First, due to the heavy blow of thermal coal policy regulation, the price of thermal coal futures has plummeted continuously, triggering a sharp correction in domestic commodities, as aluminum pushed by coal prices in the early stage, the cost-driven decline, the adjustment is particularly prominent. Second, the demand for black building materials continued to weaken last week, which aggravated the market's concerns about the consumer side, and the sharp decline in ferrous metals triggered a sharp decline in real estate chain-related commodities, and aluminum was once again affected. The recent continuous accumulation of domestic electrolytic aluminum also confirms the market's pessimistic attitude towards demand, which further drags down aluminum prices.

Supply disturbances have not been lifted

The sharp decline in short-term aluminum prices, affected by emotions, the contradiction of electrolytic aluminum fundamentals has not changed, the supply disturbance of aluminum continues, and the production cut has spread from domestic to overseas, the scale of future production cuts still has the risk of further expansion, and the tightening of supply restrictions supports aluminum prices.

From the domestic situation, as of mid-October, Yunnan, Inner Mongolia, Guangxi and other places of power rationing capacity has reached 2.6 million tons, last week market news said that Guizhou in order to ensure the people's livelihood this winter and next spring, requiring the province's 1.3 million tons of electrolytic aluminum production capacity to be shut down, as scheduled, the supply side will add a new reduction. In the fourth quarter, under the dual suppression of dry water and cold winter, the problem of industrial electricity shortage is expected to be difficult to alleviate, and the electrolytic aluminum production capacity that was shut down in the early stage will not be restarted within the year, and the scale of subsequent production cuts will also have the risk of continuing to expand.

From the perspective of overseas situation, oil and gas prices continue to rise, resulting in a sharp rise in electricity prices, Western Europe and other places have more than doubled, the price is at 180-230 euro / MWh, India's power plant coal inventory from more than 10 days continued to fall to nearly 4 days, the lowest level in the past five years. Under the pressure of high costs, the Aldel aluminum smelter in the Netherlands announced that it would stop production until the beginning of next year, and Talum in Slovenia and Slovalco in Slovakia cut production by 50% and 10% respectively, affecting electrolytic aluminum production by about 50,000 tons in the fourth quarter. Compared with the global output of nearly 57 million tons of electrolytic aluminum per month, although the current proportion of production cuts is low, but the regions with higher power costs in Western Europe still have a capacity distribution of more than 900,000 tons including Alcoa, Rio Tinto, Hydro, etc. India has more than 4 million tons of production capacity distribution, including India Aluminum, Weidanta, etc. The agency generally expects that overseas oil and gas prices will be difficult to fall quickly in the short term, and there is a risk of expanding the scale of overseas production reductions under cost pressure.

Consumption is expected to have room for improvement

Recently, aluminum consumption has been underperforming. In September, domestic power curtailment began to spread from the upstream of the industrial chain to the downstream, and the operating rate of the processing industry in East China and South China declined to varying degrees, restricting the procurement of aluminum ingots. In addition, as prices continued to rise to historical highs in the early stage, high prices have a certain inhibitory effect on consumption. From the inventory data point of view, september began aluminum ingots and aluminum rod out of the warehouse has always been low, the domestic social library continues to accumulate, the current aluminum ingot social library has risen to a neutral level of 970,000 tons, Shanghai aluminum futures have also turned into a positive arrangement, spot relative to the previous period has been significantly weakened. With the sharp correction of aluminum prices this time, the suppression of consumption by high prices may slow down, which is objectively conducive to boosting demand. In addition, after the National Day, the power curtailment in East China began to slow down, there is room for improvement at the consumer end, and then superimposed on the expectation of tight supply in the fourth quarter, it is expected that there is still room for inventory to fall in the middle and late period of the fourth quarter. (Author Affilications:Hongyuan Futures)

This article originated from Futures Daily