Supply and demand improve Shanghai aluminum bottomed out

Since late February, aluminum prices have fallen both at home and abroad. Among them, Shanghai Aluminum's performance was even weaker. Shanghai Aluminum's 1106 contract fell from 17,440 yuan/t at the highest to 16,445 dollars/t, a decrease of 5.7%. In the recent promotion of the fall in Shanghai aluminum prices, the turmoil of the overall macroeconomic environment and China’s continuous oversupply situation have played a leading role. In the later period, the factors that affect market prices still exist. However, the possibility of improvement in the later period is more likely. Shanghai Aluminum is expected to have a bottoming rally.

European debt issues are the biggest macro uncertainties With the tight political situation in the Middle East and North Africa, international crude oil prices have risen significantly. As a major energy source, the rise in crude oil prices directly drives the cost of energy use in various countries. As a result, global inflation has arrived ahead of schedule. This is no exception for Europe where the current economic recovery is still slow. The current European Central Bank ** Trichet and other central bank officials have repeatedly expressed their concern about inflation in public. In an institution such as the European Central Bank that has the primary purpose of controlling inflation, this may mean that the possibility of the European Central Bank raising interest rates has greatly increased. This makes the market generally expect the ECB to raise interest rates in April. This directly promoted the increase in the yield of the euro zone government bonds. For Europe's highly indebted countries, this means that it is more difficult for them to raise funds and the cost of repayment increases further. As a result, the issue of debt repayment of high-debt countries in the later period has greater uncertainty. The recent downgrade of sovereign debt ratings of Spain and Portugal by Moody's confirmed this problem. This will raise investors' concerns about the European sovereign debt issue. This will be the biggest uncertainty in the later macroeconomics. However, the Japanese earthquake problem that has received much attention from the market will gradually fade with the recovery of market sentiment. The focus of the late-stage market will shift to the demand for raw materials after the disaster and the evacuation of post-disaster insurance funds from the international market. Judging from the current market situation, the impact of the earthquake in Japan on the later financial market will further weaken.

Many electrolyzed aluminum companies restarted to drive production growth The power limiting measures brought about by the “Eleventh Five-Year Plan” energy saving and emission reduction targets in the country made the domestic electrolytic aluminum production capacity be curbed. After entering 2011, the production capacity restrictions brought by energy conservation and emission reduction are gradually lifted. Electrolytic aluminum companies have also proposed resumption of production plans. According to the author's understanding of the market, electrolytic aluminum production capacity in most regions in China has gradually achieved production recovery. This situation is more common in Henan, Guizhou and Shanxi. Taking Henan as an example, Shenhuo Aluminum is expected to reach a production capacity of 500,000 t in the near future, and Jiaozuo Wanfang will be able to complete full production by the end of April. While the characteristics of the restart of electrolytic aluminum production capacity are obvious, the production of new electrolytic aluminum production capacity in various regions has a high enthusiasm for production. According to the news from Baichuan, the new production capacity that has recently been put into operation are: 100,000 tons of Linyi Aluminum Company of Gansu, 250,000 tons of the Upper Yellow River Hydropower Development Co., Ltd., 90,000 tons of Quzhai Aluminum, Luquan, and 50,000 tons of Taiyuan Donglu. Aluminum production capacity. The restart of production capacity and the commissioning of new production capacity have led to an increase in domestic electrolytic aluminum production capacity. This directly promotes the growth of domestic electrolytic aluminum production. According to the National Bureau of Statistics, the output of electrolytic aluminum in China for the first two months of 2011 was 1.298 million tons and 1.305 million tons, respectively, which were significantly higher than the 12.12 million tons in December 2010. With the restart and production of many aluminum electrolytic capacities in China, the output of electrolytic aluminum in the latter period is expected to increase further. However, after falling prices after the end of February, the electrolytic margin of electrolytic aluminum companies has dropped significantly from the previous period. Falling prices and rising alumina prices erode corporate profits. This will reduce the enthusiasm of late-stage electrolytic aluminum companies to resume production, and thus the rate of increase in domestic electrolytic aluminum production will gradually slow down.

The decline in domestic aluminum stocks shows that the supply and demand relationship improved. Due to the Spring Festival, domestic aluminum consumption declined in February. This can be confirmed from the 1.485 million tons of aluminum produced in China in February was significantly lower than the 2.29 million tons in December 2010. Under the dual pressure of the increase in electrolytic aluminum production and the declining consumption, domestic electrolytic aluminum inventory has increased significantly. According to statistics from Shanghai Nonferrous Metals Co., Ltd., domestic electrolytic aluminum inventory began to rise unilaterally in February. As of March 3, domestic electrolytic aluminum stocks have reached 838,000 t, an increase of 209,000 t from the 629,000 t at the end of January. This is also in line with the practice that domestic electrolytic aluminum inventory will rise after the Spring Festival in previous years. This is mainly due to the fact that the electrolytic aluminum production and consumption are not affected by the Spring Festival factors. With the weakening effect of the Spring Festival, domestic downstream aluminum consumer companies will gradually resume production. Although the recruitment problem at the beginning of this year has caused the production of some companies at the beginning of the year to be curbed, the current market situation shows that this suppression has not been sustained. With the increase in the operating rate of downstream consumer companies, the domestic aluminum consumption situation has increased significantly from the previous period. This can be seen from the current enthusiasm for procurement of downstream companies in the spot market and changes in domestic stocks. On March 10, domestic electrolytic aluminum stocks were 828 thousand tons, a decrease of 10,000 tons from last week, which was the first decline in domestic electrolytic aluminum inventory since February. In the context of electrolytic aluminum operating capacity growth and consumption growth, the late inventory changes depend on the amount of change between the two. The author believes that with the gradual recovery of downstream consumption, the trend of inventory decline is still expected to continue. This will, to a large extent, reduce the pressure of rising inventory on aluminum prices. Thus the support of the fundamentals for prices will be gradually reflected.

Summary: The advent of the global inflation situation has made it possible for European countries to raise interest rates. This will put pressure on high-debt companies to raise funds and repay loans. As a result, the post-European debt problem will have a negative impact on commodity prices. The impact of the earthquake in Japan will gradually weaken over time. In terms of fundamentals, domestic aluminum electrolysis companies have higher enthusiasm for recovery of production capacity and production, and domestic electrolytic aluminum industry will see further growth in operating capacity. With the growth of production capacity, electrolytic aluminum production will further increase. In the previous period, consumption affected by the Spring Festival will gradually recover. This will promote the decline of domestic electrolytic aluminum inventory. As a result, fundamental support for aluminum prices will increase. This will limit the room for late price drop. Therefore, it is more likely that Shanghai aluminum prices will come out of the bottom of the rebound. From a technical point of view, Shanghai Aluminum has a weaker trend, and the 1106 contract may support down 6500 and 16300 yuan/t. Prices are more likely to be supported here. After that, it is expected to see a rebound from consumption.