Affected by the novel coronavirus, the downstream enterprises resumed their work time after the Spring Festival, which is generally delayed for more than a week. In this context, the price of aluminum after the festival was significantly lower. Recently, with the epidemic gradually under control, production has been resumed in the downstream, and aluminum prices have rebounded.

There is still a gap in short-term supply

Based on the analysis of the change of social inventory of domestic aluminum ingots, the situation of relatively tight supply of domestic aluminum ingots is still continuing. Statistics show that during the Spring Festival, the social inventory of electrolytic aluminum in China increased by about 190,000 tons, which is basically the same as the increase in the same period last year, slightly higher than the average level of the same period in the past six years. During the two weeks from the Spring Festival to February 17, the social inventory of aluminum ingots increased by about 280,000 tons. From the perspective of inventory increase, there is no significant change in the growth of social inventory of aluminum ingots compared with previous years, especially considering the impact of the epidemic this year. On the one hand, the accumulated time of the Spring Festival is extended, on the other hand, the restrictions of the epidemic on the circulation of people cause the traffic and transportation in some areas of the north to be blocked, which leads to the decrease of aluminum water supply and the increase of enterprise ingots. Therefore, we believe that the current supply and demand pattern of aluminum ingots is basically the same as that of the same period last year.

From the analysis of new capacity quantity, although Yunnan Yixin and Yunnan Shenhuo have successively invested part of their capacity, the overall production scale is significantly lower than the actual gap of nearly 1.2 million tons last year, and there is no need to worry about the increase of supply in the short term. At least before the end of spring market, there will be no obvious excess of domestic aluminum ingot supply.

Downstream consumption is expected to pick up

From last week, domestic production enterprises began to resume work one after another. It is expected that the speed of resumption of production will be accelerated and the scale will be further expanded this week. The data shows that at present, the number of newly confirmed and suspected cases in the whole country has declined significantly, and the number of newly increased cases in Hubei Province is also decreasing rapidly. Some experts even think that the ‘turning point’ of the epidemic may have arrived. At the same time, with the improvement of the epidemic situation and the increase of downward pressure on the economy, all regions began to return to work gradually, which has a positive significance for the recovery of downstream consumption.

In addition, the aluminum market has other potential benefits in the near future. First of all, most of the downstream aluminum demand is durable goods, so the aluminum demand will only be postponed or not disappear. After the epidemic subsides, the aluminum demand is likely to focus on outbreak. Secondly, due to the increase of downward pressure on the economy caused by the epidemic, the previous stable monetary policy shows signs of gradual relaxation, and the original positive fiscal policy may be further increased, and the overall macro environment is improving. Finally, the spring market of ‘gold March and silver April’ itself has a high degree of certainty. In the past years, aluminum prices in most years will rise in a period of time after the Spring Festival, and remain strong to around the middle of the second quarter. It is believed that this year's aluminum prices are no exception.

In conclusion, there is a high probability that aluminum prices will continue to rise in the short term, and it is expected to reach 14,000 RMB/ton in the second quarter. It should be noted that although the supply of aluminum ingots is tight in the short term, there is still a large increase in the supply within the year, and the pressure on aluminum prices in the second half of the year is expected to gradually increase. In terms of operation, it is suggested that we can buy 2004 or 2005 contracts on the basis of bargain hunting, and choose the opportunity to stop profit above 14,000 RMB/ton. In addition, affected by the poor transportation of aluminum water and the incomplete recovery of downstream demand, the contract of aluminum in recent months is obviously weak. With the orderly resumption of construction, this situation will be corrected. Therefore, we can try to buy the contract of recent months instead of the contract of distant months.

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