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High Inventory, Aluminum Prices are under Pressure
March 09 2020 09:10:10SunSirs(Linda)

As the epidemic continues to spread, the price of electrolytic aluminum in China continues to fall. With the continuous introduction of counter cyclical adjustment policies by major economies, the resumption of domestic production is also advancing. At the same time, the rise of alumina price has a positive impact on the aluminum price. However, from the perspective of supply and demand, the aluminum prices are still not optimistic, and the future market will continue to face pressure.

As the epidemic continues to spread, the global economic growth is under pressure, so the counter cyclical policy is constantly launched. On March 3, the Federal Reserve announced an emergency reduction of the benchmark interest rate by 50 basis points and the excess reserve ratio by 50 basis points. The Australian Federal Reserve announced an interest rate resolution to cut the interest rate by 25 basis points from 0.75% to 0.50%, a record low. Subsequently, Malaysia, Kuwait, Saudi Arabia, the United Arab Emirates, Jordan and other countries cut interest rates one after another. Canada, the United Kingdom, Japan and the European Central Bank announced that they would take necessary easing measures to stabilize the financial market. At home, tax reduction and fee reduction policies and loose monetary policies have been continuously introduced, and the downstream resumption of production is also gradually promoted, which has a positive impact on aluminum prices.

The epidemic has a significant impact on alumina production. As a result of the epidemic, the traffic and resumption of work are not smooth. The supply of bauxite, caustic soda and coal are affected. As a result, more than 5.5 million tons of alumina enterprises in China have cut production or stopped production, including Shanxi Xinfa, Xing'an Huagong, Chiping Xinfa, Weiqiao, etc. to varying degrees. Aladdin expects the alumina output in February to be 5.3765 million tons, and the daily output in that month was 185,400 tons, which was 1,560 tons lower than that in January, and the output in March is expected to continue to decline to about 183,000 tons. The decline of alumina supply led to the price rise. After the festival, the alumina price in Shanxi Province increased by 5.5%. The cost of electrolytic aluminum rose and the profit of electrolytic aluminum was compressed. At present, the average profit of electrolytic aluminum is close to the profit and loss line.

The production of electrolytic aluminum is not affected by the epidemic situation. Only some new and re production projects have been delayed, such as Xinjiang Xinfa, Xiwang Guyuan, Guangyuan Zhongfu, etc., but some planned projects have been put into production orderly, such as Yunnan Aluminum Yixin, Yunnan Shenhuo, Wenshan aluminum, etc. On the whole, due to the characteristics of production process, under the current situation of small profit loss, the long-term large-scale production reduction is not expected to occur in March, and the production of electrolytic aluminum will continue to grow. According to Aladdin data, it is expected that the domestic electrolytic aluminum output in February will be 2.927 million tons, with a daily average of 10,093 tons. In March, the daily average output will continue to increase slightly to 101,000 tons.

Although with the promotion of domestic resumption of production and the improvement of electrolytic aluminum consumption, the shortage of raw materials will be alleviated gradually, and the price of alumina will be suppressed. According to the survey, the auto transportation of alumina and bauxite has gradually recovered since the end of February, and the transportation in Shaanxi, Henan and other places has become more smooth. Bauxite mines in Sanmenxia, Pingdingshan and other places in Henan Province have started production and will resume normal production capacity in a week.

The stock of aluminum ingots keeps accumulating. Due to the weak downstream consumption and the improvement of automobile transportation, some aluminum ingots in the plant area are directly transported to the downstream enterprises, resulting in the decline of outbound volume and the continuous accumulation of aluminum ingot inventory. According to Shanghai Nonferrous Metals network, as of March 5, the domestic social inventory was 1.488 million tons, an increase of 103,000 tons over the previous week. In terms of plant and warehouse, with the growth of downstream enterprises returning to work, the proportion of aluminum and water in the aluminum plant increases, and the amount of ingots decreases, so the aluminum ingots in the plant and warehouse decline. However, due to the slow start of terminal enterprises and the limited downstream orders, the finished product inventory of aluminum processing enterprises accumulates. From the perspective of industrial chain, aluminum ingot is just another form of inventory transfer.

On the whole, the continuous introduction of domestic and foreign counter cyclical adjustment policies and the rise of alumina price all contribute to the formation of aluminum prices. However, with the continuous growth of electrolytic aluminum production, the slow recovery of domestic consumption, and the weakening of external demand due to the impact of the epidemic, the aluminum ingot inventory will accumulate to a high level, and the future aluminum price will continue to face pressure.

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