On June 6th, the Shanghai Stock Exchange issued a notice on alumina futures contracts and related business rules, matters related to the listing and trading of alumina futures, as well as deliverable commodities, designated delivery warehouses (factories), designated quality inspection institutions, and other contents. According to the announcement of the Shanghai Stock Exchange, alumina futures will be listed for trading starting from Monday, June 19, 2023. The first batch of listed contracts are AO2311, AO2312, AO2401, AO2402, AO2403, AO2404, AO2405, and AO2406. The benchmark price for listing will be announced by the Shanghai Stock Exchange on the trading day before the listing.
Will the listing and trading of alumina futures have an impact on the aluminum ingot market on the cost side?
Firstly, let's take a look at the upstream and downstream situation of the aluminum industry chain:
The total cost of electrolytic aluminum mainly includes two parts: the first part is the cost of smelting raw materials, including the cost of aluminum oxide, electricity, pre baked anode, aluminum fluoride and cryolite; The second part is labor and financial costs, including labor costs, maintenance costs, three expenses, and depreciation expenses. Among them, alumina and electricity account for the highest proportion, each accounting for 33% -35% of the total cost of electrolytic aluminum, followed by the cost of pre baked anodes, accounting for about 15% of the total cost.
Since April, the cumulative cost of electrolytic aluminum has decreased by about 1000 RMB/ton. On the one hand, it is due to the downward movement of aluminum oxide prices, with a cumulative decrease of around 72 RMB/ton. Currently, the prices are slightly lower than those of the same period in 2022 and 2019, and higher than those of the same period in 2020 and 2021. On the other hand, the continuous decline in the price of thermal coal has led to a decrease in electricity costs. Currently, more than half of domestic electrolytic aluminum enterprises use self owned thermal power plants for power generation, resulting in a decrease of 0.01 RMB/Kwh in electricity costs; In addition, the price of auxiliary pre baked anodes has significantly decreased, with a cumulative decrease of 1,650 RMB/ton.
From a cost perspective, the cost of electrolytic aluminum has shifted downwards. Currently, the profit from electrolytic aluminum smelting is as high as 2,000-2,500 RMB/ton, and the cost support has weakened for aluminum price.
From the perspective of supply and demand, Guizhou and Sichuan continued to promote production resumption in May, with an overall scale of approximately 180,000-200,000 tons. At the same time, Inner Mongolia and Sichuan had a small amount of new production capacity. At the end of May, the operating capacity of domestic electrolytic aluminum increased to around 41 million tons, reaching the highest value since July last year.
Entering the high water period in June, the variable of electrolytic aluminum mainly depends on the changes in the supply side. The expected swing in Yunnan's resumption of production is one of the main factors leading to the recent sideways fluctuations in aluminum prices. In the early stage of the market, it is expected that the production capacity of nearly 2 million tons, which was previously cut off due to power restrictions, will gradually resume production in the future, and supply will further increase. However, the precipitation in Yunnan improved month on month, but remained at a low level year-on-year. There is a high probability of an El Ni ñ o phenomenon this year, and water and electricity supply may remain low, with production resuming below expectations. On the demand side, the weakening of terminal consumption is gradually transmitting to processing enterprises, and the off-season effect in June is gradually showing. The operating rate of domestic aluminum downstream processing leading enterprises remained unchanged at 64.1% month on month last week, with only the operating rate of the aluminum cable sector rising during the week. The operating rate of aluminum plates, strips, and profiles was slightly reduced due to the arrival of the off-season and insufficient demand. The operating rates of the aluminum alloy and aluminum foil sectors have remained low this week, and there are still expectations of a downward trend in operating levels despite weak orders. Overall, there is an expected increase in supply in June, but it is not as expected. Demand is weak due to factors such as terminal and high aluminum prices.
From other fundamental data, a high proportion of aluminum water results in a significant reduction in the inventory of aluminum ingots. Inventory data shows that as of June 5th, the social inventory of domestic electrolytic aluminum ingots was 583,000 tons, a decrease of 19,000 tons compared to last Thursday. As of June 6th, LME aluminum inventory increased by 4,425 tons to 589,475 tons compared to the previous trading day. At present, the social inventory of aluminum ingots is at the lowest level in recent years.
In terms of exports, the latest data from the General Administration of Customs shows that in May 2023, China exported 475,300 tons of unwrought aluminum and aluminum products; Accumulated exports from January to May reached 2.315 million tons, a year-on-year decrease of 20.2%.
Overall, production is expected to increase steadily and slightly in June. Based on inventory data, there is a clear trend of inventory depletion in the electrolytic aluminum industry. The main game point currently lies in the actual supply and demand changes in the later stage. It is expected that aluminum prices will mainly fluctuate around 18,000-18,500 RMB/ton in the short term, and looking at downstream consumption intensity in the near future.
If you have any questions, please feel free to contact SunSirs with support@sunsirs.com.