Review of China's electrolytic aluminum supply and demand in the first half of 2021 and prospect in the second half of 2021

At today's live online market conference hosted by SMM, SMM analyst Li Jiahui delivered a keynote speech on the review of China's electrolytic aluminum supply and demand in the first half of 2021 and the outlook for the second half of 2021. At the conference, she analyzed the hot issues of electrolytic aluminum cost such as alumina and prebaked anode, and looked forward to the later electrolytic aluminum price from the aspects of supply and demand, import and export.

Cost side

The cost side of 2021 electrolytic aluminum rises slowly, and the rise is expected to continue in the second half of the year

Based on the quotation of SMM raw and auxiliary materials, the full average cost of electrolytic aluminum industry in June was 14187 yuan / ton, up 12% year-on-year and 1.5% month on month, up 933 yuan / ton compared with the full cost of electrolytic aluminum at the beginning of January. The cost of domestic electrolytic aluminum is expected to continue to rise in the second half of the year.

Main reasons: (1) the rise of domestic electrolytic aluminum coal price leads to the rise of thermal power generation cost, and the electricity prices of relevant electrolytic aluminum plants are increased to varying degrees.

(2) In the second half of the year, the alumina market maintained a range shock.

(3) Prebaked anode can operate at high level throughout the year.

The price trend of alumina and electrolytic aluminum deviates from the North-South upside down situation, which is expected to be maintained for a long time

In the first half of the year, the trend of alumina market deviated from that of electrolytic aluminum market. Since 2019, alumina prices at home and abroad have fallen step by step, and the price trend at home and abroad has basically converged. The price fluctuation range in the first half of 2021 is small. SMM alumina price index shows that the average price of alumina in China in 2019 is about 2683 yuan / ton, and that in 2020 is about 2341 yuan / ton (the lowest price since 17 years) At present, the cumulative average price in 2021 is 2394 yuan / ton, slightly higher than that in the same period last year. In contrast, the global price of electrolytic aluminum is at a high level, and the price ratio of alumina to electrolytic aluminum is as low as about 12%.

In addition, there are obvious differences between the north and the south in alumina prices. In July, affected by the slight reduction in production in the north, the alumina market gradually returned from surplus to balance or even near a slight shortage, and the excess range in the north is less than that in the southwest, which also led to the high and stable price in the north, while the spot transaction in the southwest market is light and the upside down price difference with the north is difficult to narrow.

In the second half of the year, China's new volume and import volume of alumina continued to put pressure on alumina prices

SMM view: China's alumina price range fluctuated in the second half of 2021, but the upper and lower space is relatively limited, and the cost side provides support. Attention: (1) operation fluctuation at both ends of supply and demand affected by power limitation, ore shortage and other problems; (2) The impact of inventory levels on spot trading activity and policy changes: short-term safety and environmental protection inspection, medium and long-term carbon neutralization on alumina market, etc.

In the second half of the year, the price of aluminum prebaked anode continued to maintain a strong trend

Since July 2020, the domestic prebaked anode market has started the continuous rising mode, with a cumulative increase of 1800 yuan / ton, or 72%. Up to now, the ex factory quotation of prebaked anode common blocks in Shandong has reached 4300-4600 yuan / ton, a new high since January 18.

The average export price of domestic prebaked anode products also hit new highs. SMM learned that the FOB export price in June was about 800-850 US dollars / ton.

The cost side of prebaked anode continues to rise, and the price of prebaked anode is expected to continue to rise in the first and second half of the year

Recently, the delayed coking units of local refineries have been shut down for maintenance. In addition, the early maintenance units have not started to resume production, the supply of domestic petroleum coke resources has been tightened, and the petroleum coke market is rising again. It is expected that some coke prices may be slightly adjusted in the second half of the year due to the influence of both supply and demand, but on the whole, the domestic medium and high sulfur petroleum coke prices are still high.

Up to now, the price of domestic reformed coal tar pitch still fluctuates around 5100-5200 yuan / ton. In the second half of the year, the supply of coal tar may be expected to release, but the raw material coal tar is in short supply. Deep processing enterprises may maintain a low load operation level. However, considering the affordability of the downstream to high prices, the market is expected to decline.

On the whole, the cost end of domestic prebaked anode is well supported, and the bottom support to maintain high operation in the second half of the year is still.

The demand at home and abroad is good, and the operating rate of domestic prebaked anode is better than that of the same period last year

From January to June, the operating rate of domestic prebaked anodes rebounded. So far, the operating rate of the industry has remained stable at about 77%. From January to June, the total output of domestic prebaked anodes was about 10.49 million tons, an increase of 16% over the same period last year.

Overseas demand remained stable. The total export volume of China's prebaked anode from January to June was about 800000 tons, and the total export volume of the whole year is expected to be 1.5 million tons.

The industry has excess capacity, which suppresses the upward price. The price of prebaked anode depends on the change of cost for a long time. It is estimated that the price of prebaked anode common block in the second half of the year will be 4200-4500 yuan / ton.

Supply side

In 2021, the domestic electrolytic aluminum supply showed a slow upward trend, and the new capacity was significantly limited

In the first half of 2021, the domestic electrolytic aluminum output reached 19.468 million tons, a year-on-year increase of 8.10%. The increase is mainly due to the cumulative new electrolytic aluminum production capacity reaching the production volume from October 2020 to February 2021. The year-on-year growth rate of domestic electrolytic aluminum production in March was close to 10%. However, in March, in order to ensure the completion of the "double control" task, Inner Mongolia pressed production, and continued to increase the scale in May, resulting in the shutdown of about 440000 tons of production capacity in the region. Due to the shortage of power in mid and late May, Yunnan reduced production by about 940000 tons. In the second quarter, the growth rate of domestic electrolytic aluminum production slowed down. In May and June, the operating rate of electrolytic aluminum in Yunnan and Guizhou fell, of which Yunnan fell by about 20% compared with April. In June, the production capacity of electrolytic aluminum in Gansu and Henan continued to increase gradually, and the operating rate increased. As of early July, China's electrolytic aluminum production capacity was 38.88 million tons / year, and the effective built capacity was 43.804 million tons / year. The operating rate of national electrolytic aluminum enterprises was 88.8%. The performance of overseas electrolytic aluminum recovered synchronously in March 2021, and the overall growth rate turned positive, which is still slightly weaker than that of the Chinese market.

Active increase vs passive decrease - expected new and reduced production capacity in 2021 and in the long term

In the second half of the year, 920000 tons of new production capacity was actually added, and these new production capacity has been put into operation. In the second half of the year, more production capacity reduced in the early stage is restored. What is the restoration capacity? The contribution of this part of the restoration capacity is also relatively limited. At present, the overseas supply is also limited, the overseas epidemic and other aspects are restrained, and the new overseas production capacity is expected to be reflected only in 2022, mainly in India, the Middle East and other regions.

Terminal consumption

The growth rate of aluminum terminal consumption slowed down in the second half of 2021

Recently, the National Bureau of Statistics announced the national real estate development investment and sales from January to June 2021. In terms of development investment, in the first half of the year, the national real estate development investment increased by 15.0% year-on-year; It is 17.2% higher than that from January to June 2019. In terms of commencement and completion, the newly started and completed area of houses increased by 3.8% and 25.7% respectively year-on-year. Since the state has implemented three lines for real estate, the decline in sales growth reflects the gradual regulation effect under the background of tight policy. It is expected that sales will continue to slow down in the second half of the year. The completed area became normal in May and increased sharply in June. It is expected to continue to pick up in the second half of the year. The increment of aluminum consumption in real estate in the second half of the year is expected.

Semi finished product consumption

The operating rate of China's aluminum processing industry began to decline from June to July

The operating rate of building aluminum profile led the decline in the downstream processing section, followed by the plate and strip, while the primary and recycled alloy sections continued to perform poorly due to the lack of core in the terminal automobile section; The operating rate of cables is expected to stabilize and recover in the third quarter.

The operating rate of China's aluminum processing industry began to decline from June to July. Due to the slowdown in the growth of profiles, strips, cables and alloys (recycled and primary), the domestic aluminum processing industry performed well in the second half of last year and the growth rate is limited this year.

Import and export

China's aluminum export market can still be expected from 2021 to 2022

According to the customs data, the total export volume of aluminum materials from January to June was about 2.53 million tons, a year-on-year increase of 12%. Due to the non synchronization of internal and external epidemic situations, China's aluminum exports performed strongly. The profit level of aluminum export gradually recovered to the level of 19 years.

In the second half of the year, we expect the ratio to remain at the current low level, which will provide a good support for China's aluminum export. According to our research, China's aluminum export orders are performing well, and we still need to pay attention to the impact of shipping on the export market in the later stage.

Electrolytic aluminum inventory: the inventory removal cycle in 2021 may continue to the end of the third quarter, or the inventory may be low

Both supply and demand are weak. Since late July, the speed of domestic stock removal has slowed down. However, based on various disturbances at the supply side, we expect that the inflection point of stock accumulation will continue to be delayed. On the supply side, we expect a small stock accumulation from August to September. On the other hand, domestic storage will fill some of the gap of production reduction, but domestic electrolytic aluminum is still in a small peak season from September to October, It is expected that the domestic electrolytic aluminum inventory will remain at a low level of 800000 tons throughout the year.

Balance: in 2021, China's domestic electrolytic aluminum is still dominated by tight balance, and it is difficult to have significant excess space

Conclusion: aluminum is a pricing variety with strong fundamental attributes, and fundamentals are still the key consideration. The year-on-year growth rate of electrolytic aluminum production in the second half of the year was weaker than that in the first half of the year. Pay attention to the expected changes on the supply side, whether the import window in the second half of the year was narrower than that in the first half of the year, and whether the throwing storage exceeded 350000 tons. In the second half of the year, the core operating range of the main contract is 18000-19500 yuan tons, which does not rule out the possibility of short-term breaking.

SMM expects the aluminum price in the second half of the year to be high. On the one hand, the annual inventory may have been low, the bottom will support, and the cost will continue to play a supporting role. On the other hand, there are macro expectations of interest rate hikes outside Shanghai and some repression on aluminum prices due to domestic storage dumping and regulation.