Aluminum price should not chase up blindly

Off season background

News on January 7; In the short term, we need to be vigilant against the rise and fall of aluminum prices in the off-season. We should not blindly chase up in the future, but we can continue to hold more orders in the early stage. In the long term, aluminum prices will still perform well in 2022 with the overall good fundamentals.

With the continuation of the European energy crisis and the rise of the new fixed price contract, the production of aluminum enterprises is difficult to sustain at present. Earlier, the electricity price of KAP aluminum smelter was 45 euros per megawatt, while the electricity price contract expired on January 1, 2022. The new electricity price contract was negotiated at 127 euros per megawatt, and KAP aluminum smelter was forced to reduce production. So far, the production capacity of electrolytic aluminum in Europe has been reduced to 800000 tons, accounting for 2.8% of overseas supply, and there may be 600000 tons of potential production reduction. If there is a substantial reduction in production in Europe, it is expected that the probability of rapid resumption of production in the next two years is low. The disturbance of overseas supply makes Shanghai aluminum (21555, 360.00, 1.70%) rise to more than 20700 yuan / ton.

Facing seasonal weakening

Container freight rates remain high and reach a new high at the end of 2021. Due to the coincidence of domestic Spring Festival and Winter Olympic Games, the shutdown and holiday cycle of environmental protection may be prolonged, and the export orders in the aluminum market remained strong at the end of the year, resulting in the phenomenon of catching up with orders. The previous queue at the destination for more than one month has greatly increased the cost of the shipping company. The shipping company decided to reduce the number of ships by 20% in December 2021 and further increase the freight. Due to various reasons, the domestic market demand was strong last December, the aluminum ingot inventory was rapidly removed, and it was difficult to increase significantly at the supply end. There was a wave of rebound in aluminum price supported by fundamentals.


Although the fundamentals are generally good, we still need to be vigilant against two risk factors: first, since mid January, downstream processing enterprises have gradually entered the traditional shutdown and vacation cycle, the social inventory of aluminum rods has been tired, the seasonal consumption off-season can not be ignored, and the aluminum price is not suitable to catch up at present. Second, the latest FOMC monetary policy meeting minutes released by the Federal Reserve showed that in view of the rising inflationary pressure and the strengthening of the labor market, participants believed that the increase in policy easing brought by the current pace of net asset purchase was no longer necessary; It is necessary to raise the federal funds rate in advance or at a rate higher than previously expected by participants; The reduction speed can be faster than the previous cycle. On the whole, the fundamentals are expected to weaken seasonally, coupled with the increase of macro disturbance, the aluminum price may show a weak trend around the Spring Festival.

Long term support remains

In the long run, the disturbance of overseas supply is difficult to recover in the short term. In 2022, China's imports of primary aluminum and aluminum materials will be significantly reduced. The impact or reduction of the import end on domestic supply will make overseas aluminum prices stronger than Shanghai aluminum.

Although the domestic supply side has a large number of production capacity to be put into operation and resume production, the current base of wind power and photovoltaic power is small, and there is still high uncertainty whether the power supply can meet the normal operation of a large number of production capacity. Therefore, the domestic electrolytic aluminum supply should not be too pessimistic, and the production capacity is expected to be lower than expected. On the domestic consumption side, under the trend of rapid development of new energy, there will be a significant increase in long-term aluminum consumption. It is expected that the output of new energy vehicles will increase by 1.7 million in 2022, with a growth rate of 50%, and the contribution of the automobile industry to aluminum consumption will be about 270000 tons. The performance of the household appliance industry is stable, coupled with the rapid launch of photovoltaic and wind power, the planning reform of West to East power transmission, and the aluminum consumption in power grid transformation, it is expected that the annual apparent consumption growth rate in 2022 will be 2.4%. On the whole, there is a shortage of electrolytic aluminum supply throughout the year, which will basically form a strong support for aluminum price. After the stable operation of the macro level, aluminum price may usher in a new rising cycle.

To sum up, in the short term, it is necessary to be vigilant against the rise and fall of aluminum price in the off-season. It is not suitable to blindly chase up in the future, but more orders in the early stage can continue to be held. In 2022, supported by the overall improvement of fundamentals, aluminum prices will still perform well. For domestic electrolytic aluminum enterprises, the cost side disturbance will be reduced, and the profits of electrolytic aluminum enterprises will continue to be maintained.