Electrolytic aluminum: the market needs to continue to exert force after controlling the supply quantity

In China, electrolytic aluminum, which is one of the most representative overcapacities, has not been optimistic in recent years. However, recently, a number of testing organizations have released data showing that the price of electrolytic aluminum has started to rebound, and the current core operating area has crossed the threshold of 11,000 yuan/ton.

Electrolytic aluminum prices, which have continued to fluctuate in price, have finally shown signs of recovery. This data is a happy event for the electrolytic aluminum industry that has long been in overcapacity and low prices.
It is worth mentioning that, starting from the third quarter of 2015, aluminum prices accelerated to decline, among which alumina dropped by nearly 30% in November, hitting a new low in 10 years, and electrolytic aluminum also fell to a low of nearly 20 years.
Changes in supply and demand combined with reduced production and storage are the main reasons <br> From the low point of the past 20 years, to the price that has now improved a bit, it seems not accidental. Jiang Tianming, director of research and development of non-ferrous metals at Da Yue Futures, said in an interview with reporters that the reason for the rebound in the price of electrolytic aluminum is the effect obtained by the electrolytic aluminum enterprises jointly reducing production and storage. The decline in production capacity leads to a reduction in smelter sales expectations and the consumption will soon enter. During the peak season, there will be a lack of phased inventory trends.
“The upward movement of the stock index turbulence has driven the overall recovery of the base metals and the impact of rising oil prices. The aluminium price on the LME plate continues to rise. In addition, China’s continuous favorable real estate policies have meant that the inventory is cleared, plus the money is loosened and all the prices of the inner plate commodities are better. Several policies stacked up to detonate the price of building materials, which led to a dramatic upsurge of Shanghai Aluminum.In fact, the most important thing was that after the fifteenth day of the first month, the downstream construction sites started one after another, the demand increased significantly from the previous period, and the domestic collection and storage achieved initial results. There was a slight shortage of cargo volume, and the supply and demand changes at spot aluminium prices have been increasing.” Jiao Jie, an analyst at Zhuo Chuang, said in an interview.
Zhuochuang data shows that since 2015, many domestic aluminum enterprises have been unable to bear the burden of cost reduction and production. The built capacity has decreased by 130,000 tons. Some of the old equipment has been directly dismantled and removed from the market; the operating capacity reduction scale reached a peak of 3.65 million tons at the end of October. Around the same time, some enterprises appeared to resume production. According to comprehensive statistics, the output decreased by 3.21 million tons.
According to public data, in November 2015, the total domestic aluminum ingot social inventory exceeded 1 million tons, and after months of supply reduction, inventory has dropped to about 600,000 tons.
“Coal prices and alumina prices have stabilized and picked up, while the average electricity price has dropped to 0.25 yuan, and there is little room for further cost reductions in the future. On the contrary, the cost has begun to increase. The price of alumina in the core region has risen by more than RMB 50/ton, and aluminum prices have formed. It is a cycle." Jiang Tianming said that although the current electrolytic aluminum prices no longer lead to production cuts, it is not enough to stimulate the active production of new production capacity. Prices need to approach 12,000 yuan/ton, and there will be no substantial increase in short-term supply.
In the interview, the reporter also learned that, in fact, the rebound in the price of electrolytic aluminum has a certain relationship with destocking. In 2015, at the industry conference, the Nonferrous Metals Association has reached a consensus that electrolytic aluminum can not be put into production within one year. Some insiders believe that this move also directly promoted the rebound of aluminum prices. In other words, at the same time as the reduction of inventories, the output of electrolytic aluminum is also reduced in large quantities, which alleviates the problem of uneven supply and demand of electrolytic aluminum.
The reporter also learned that on January 12, 2016, six companies including Chinalco, National Power Investment, Weiqiao Aluminum, Yunlu, Jiuquan and Jinjiang have agreed to set up a joint venture to undertake the tasks of electrolytic aluminum storage. A capital contribution agreement was signed, and the scale of business storage and storage was 1 million tons.
From the above analysis of the industry, we can see that the rebound of the price of electrolytic aluminum at this time, combined production and storage is the main reason. The price rebounded at this time, but it did not mean that the electrolytic aluminum industry had been smooth and the situation was not optimistic.
Still struggling <br> In the interview with reporters, Song Zhichen, a researcher in the energy industry at CIC Advisors, said that at present, the supply and demand structure of the electrolytic aluminum industry has been reversed. Compared with the original supply and demand, the pressure on electrolytic aluminum companies has also eased, mainly because on the one hand Destocking; on the other hand, reducing production, making a large number of electrolytic aluminum digestion, coupled with the current market demand for electrolytic aluminum is still relatively stable, business operations improved slightly, electrolytic aluminum prices began to rise.
Jiao Jie introduced to reporters that in 2015, China's upstream and downstream aluminum industry can be said to be in the middle of the clamp, struggling, a "drop" word intuitively reflects the overall status of China's aluminum industry. Since the beginning of 2015, domestic electrolytic aluminum prices have plunged into a vortex of stagflation, and the traditional peak season has caused a series of miscarriages. The unconspicuous appearance of a single overcast line indicates that the industry’s profitability space has been eroded step by step. However, under the weak market, the industry expects a delay in the scale of production cuts. Conversely, the expansion of the upstream and downstream aluminum industries has not stopped, and capacity expansion and technology upgrades have brought about further expansion.
“In 2015, China’s electrolytic aluminum industry entered a full-scale loss, and this phenomenon did not show any improvement in 2016.” Jiao Jie further emphasized.
However, some industry insiders stated that under the background that the macroeconomic side of the economy has not been greatly improved, the excess capacity of electrolytic aluminum will still be further aggravated, and at the same time, the price rebound due to substantial production cuts will stimulate some electrolysis. After the aluminum enterprise resumes its production and resumes production, it may further accelerate the overcapacity and vicious cycle.
Reducing production capacity is still an effective way to face the current situation of electrolytic aluminum, how to improve the industry has been constantly pondering issues. Jiao Jie believes that from the supply side, it can only shrink production capacity, through market-oriented and administrative means to compress high-cost, high-pollution production capacity. In addition, economic benefits can also be achieved through mergers and reorganizations. According to the reporter's understanding, in order to reduce losses, many electrolytic aluminum enterprises have taken decisive measures to adopt self-resilient flexible production measures, including all or part of stopping tanks, reducing production, overhauling electrolyzers ahead of schedule, delaying the repair of overhauled tanks, and early elimination of inefficient production.
Song Zhichen told reporters that if there is a breakthrough in the industry, it will need to speed up supply-side reforms, control product output, eliminate inventory, and balance supply and demand. Only in this way can supply be oversuppressed, leading to a sharp drop in product prices and affecting the business operations. Therefore, the key factor is to control the quantity of supply. On the one hand, companies agree to jointly reduce production, and on the other hand to destock, to ease the imbalance in supply.
For the future of the electrolytic aluminum industry, Song Zhichen stated that the electrolytic aluminum industry should actively transform itself, in order to drive industrialization through informatization, promote informationization through industrialization, and take a new road to industrialization.
“The transformation of electrolytic aluminum should focus on electrolytic aluminum itself, especially in the downstream areas of electrolytic aluminum, and in accordance with the needs of the market, the transformation of electrolytic aluminum to deep processing, on the one hand fully consume the original electrolytic aluminum assets, and on the other hand, it is also an electrolytic aluminum industry. Provide opportunities for transformation and upgrading,” said Song Zhichen.
In addition, some analysts have pointed out that capacity reduction is a systematic project. Only from the perspective of all aspects of the electrolytic aluminum industry chain can we achieve more positive results and achieve sustainable and healthy industry development.