Recently, the price of aluminum metal approached 17,000 yuan/ton in mid-September, but it is worth noting that the current national aluminum inventory is as high as 1.6 million tons. According to the supply and demand logic of the market, high inventory should correspond to low prices, and low inventory should correspond to high prices. The high inventory of aluminum and the high price “double high on the same stage” seem to violate the basic market rules. Then, what is the “play” in the upward trend of the aluminum price?

Factors contributing to the parallel rise in aluminum inventories and aluminum prices

To understand the price, the most basic thing is to look at the fundamentals of supply and demand, but also to see the dynamic evolution of supply and demand.

Open the domestic primary aluminum supply and demand table in recent years, we can see that from 2013 to 2015, domestic primary aluminum production was 25.1 million tons, 28.2 million tons and 30.8 million tons, plus a small amount of net imports, the actual supply was 25.32 million. The consumption was 24.23 million tons and 30.83 million tons. The consumption was 24.97 million tons, 27.91 million tons and 30.31 million tons respectively. The supply was significantly higher than the demand of 300,000 tons to 500,000 tons.

The reason is mainly due to the deep influence of the previous international financial crisis, the global economy has been weak in recovery, and the international market continues to be sluggish. Domestic demand has slowed down with the downward pressure on the economy, and the contradiction between oversupply in some industries in China has become increasingly prominent. Not only is the traditional manufacturing capacity generally over-represented, but high-consumption and high-emission industries such as steel, cement, and electrolytic aluminum are even worse. Like China's electrolytic aluminum industry, the capacity utilization rate at the end of 2012 was only 71.9%, which was significantly lower than the international average.

The electrolytic aluminum industry is an important basic industry in China, but due to its high power consumption during the production process, it has always been called “high energy-consuming industry”. In October 2013, the State Council promulgated the “Guiding Opinions on Resolving the Contradictions of Severe Overcapacity”, in which the electrolytic aluminum industry is a key industry that focuses on national regulation and control and focuses on overcapacity. In the third quarter of 2015, electrolytic aluminum enterprises have faced large-scale losses, and enterprises are generally operating difficulties. At that time, the production cost of less than 11,000 yuan / ton accounted for about 3% of the national production capacity, and the cost distribution of 11,000-11500 yuan / ton accounted for 28%. Due to the inertia of the production behavior of the old enterprises, although the entire industry vigorously promoted the production capacity, the production capacity was not significantly reduced. At that time, the national production reduction was more than 2 million tons, but the new capacity was over 3 million tons in the same period. Not as much as new capacity. Among them, the inventory of spot aluminum ingots in Shanghai, Wuxi, Hangzhou, Nanhai and Gongyi, which account for more than 90% of the country's aluminum production, totaled more than 1 million tons. The weight of the inventory caused the price of aluminum to plummet to the level of the last century at the end of 2015.

Time is up in 2016, and as the first year of supply-side structural reforms, the situation has reversed.

First, many domestic smelters have carried out sales models of direct supply of aluminum water to downstream aluminum processing enterprises in order to save a lot of costs. It is said that the cost per ton of aluminum produced by this method can reach 800 yuan. For the electrolytic aluminum industry with serious losses, such "high" profits have stimulated the producers, and many traders have produced aluminum ingots. The expectation began to consciously hoard the aluminum ingot resources.

Second, entering the real estate market in 2016, the consumption of aluminum has also been unexpectedly strong, while the excess capacity has been delayed due to problems such as capital and environmental protection. As a result, with the arrival of the peak season, aluminum ingot stocks plunged from nearly 1 million tons after the Spring Festival in 2016 to around 200,000 tons in October 2016, setting a record low. Under such circumstances, aluminum prices finally showed a wave of rising for several months.

Third, since 2017, the international non-ferrous metal prices have been soared under the “Trump Capital Construction Plan” and led to a doubling of domestic black varieties. Copper, aluminum, zinc, nickel and other non-ferrous metal varieties are under optimistic infection. They also climbed to each other, and some spot futures market speculators began to hype, arbitrage, mutual promotion and mutual amplification during the near-term period of spot futures. At the same time, the Fed's continued interest rate hikes have formed future inflation expectations in the market.

Under the superposition and action of these market's exciting factors, when the aluminum price rose from less than 10,000 yuan in 2015 to around 13,000 at the end of 2016, the market is expected to recover completely, and many of the excess capacity of aluminum is considered to be profitable and resumes production. By mid-September this year, the social ingots of aluminum ingots in 13 cities including Shanghai, Wuxi, Hangzhou and Foshan quickly rose to 1.6 million tons, nearly five times higher than the same period last year, creating a new high inventories since 2010. At this time, the aluminum price also approached 17,000 yuan / ton "inadvertently".

The rising cost of production is the root cause of the rise in aluminum prices

If it is because the incentives for the market to rise are starting to increase the output of aluminum companies this year, the aluminum prices will rise rapidly in a short period of time. What is the internal motivation?

Those who know some chemical knowledge and understand the electrolytic aluminum production process should know that electrolytic aluminum is aluminum obtained by electrolysis. The modern electrolytic aluminum industry uses cryolite-alumina melt salt electrolysis. Its production materials mainly include alumina, cryolite, aluminum fluoride, additives and carbon anodes. It consumes a lot of electricity and fuel oil in the production process. According to estimates, the cost of raw materials such as alumina and prebaked anodes accounts for about 50%; the production of electrolytic aluminum consumes a lot of electricity. At present, the production of 1 ton of electrolytic aluminum consumes about 13500 kWh, and the cost of electricity accounts for 30%-40%. Of course, there are labor costs, management fees, and transportation costs. In recent years, the state has raised environmental protection standards, and the requirements for removing harmful gases, solid dust and purifying treatment in the production process are getting higher and higher.

Since 2017, many upstream raw materials have been self-clearing in the 2011-2016 market, and the production capacity and supply of most of the raw materials for electrolytic aluminum have shrunk considerably. According to industry insiders, as of the end of August this year, the national average price of 98.5% alumina increased by 50.4% compared with the same period of last year, and the cost of electrolytic aluminum was raised by 1840 yuan/ton; the national average price of 61% aluminum fluoride increased by 47.4% compared with the same period of last year. The cost of raising electrolytic aluminum is 68.75 yuan / ton; the national average price of 96% prebaked anode is 50.5% higher than that of the same period of last year, and the cost of raising electrolytic aluminum is 637 tons. Carbon prices are also rising all the way. This year's listed company's Fangda carbon stock price rose from more than 9 yuan per share to more than 40 yuan is a side portrayal.

As a result, the cost of raw materials for the production of aluminum has increased by more than RMB 2,500/ton over the same period last year. If coupled with not lower power prices, rising labor costs and additional strict environmental compliance fees. According to this calculation, the aluminum price is 17,000 yuan / ton is the breakeven point.

In this way, it is not surprising that the price of raw materials for the production of aluminum has risen sharply, driving the price of aluminum to rise rapidly.

What is the future trend of aluminum prices?

So how will the future aluminum price go? Will aluminum stocks be high? The key to the problem is to look at the supply side reform of the aluminum industry.

With the implementation of this year's deepening of capacity reduction and environmental protection and production restriction policies, it is expected that there will be more than 5 million tons of production reductions throughout the year. Although some production capacity has been shut down, production capacity resumption, new capacity production and capacity replacement are also in progress, which means that the total output of electrolytic aluminum is sufficient to hedge the production scale.

According to the Asian Metal Network data in the industry, the new production capacity of electrolytic aluminum in China reached about 4.45 million tons in 2017. As of August, the country's new production and resumption of electrolytic aluminum production capacity has reached 3 million tons, basically achieving a stable supply of production. Moreover, from now on, the effect of supply-side reform has basically been achieved, upstream profits have been repaired, and low-end and high-pollution capacity has been basically eliminated. The industry generally believes that with the violation of regulations, the replacement of production capacity indicators and the resumption of idle capacity, the current capacity utilization rate has reached a high level of more than 91%. Therefore, the inventory of aluminum is sufficient to ensure the supply of aluminum, and more reactions on the market will show changes in aluminum stocks.

The price of aluminum in the fourth quarter and even next year will be judged: domestic aluminum stocks may decline after the heating season, but in the future, as the existing capacity replacement indicators are exhausted, the approval of new capacity will be suppressed by the policy, and aluminum demand will continue. Maintaining a strong momentum, its supply and demand will be reflected in a monthly or quarterly tight balance. At the same time, raw materials, electricity, labor costs, etc. have basically sealed the bottom of aluminum production costs, the possibility of a sharp drop in aluminum prices is small, and the profit per ton of aluminum is expected to continue to maintain its current high position. Those high-quality leading aluminum enterprises with compliant capacity and continuous innovation and initiative to reduce production costs will benefit from the policy and industry fundamentals.