2017 Aluminum Market Outlook

According to the 2017 aluminum market trend, we think that the aluminum market will maintain a steady rise gradually. Below is our analysis:

From the supply side, by the end of November 2016, the aluminum production capacity was 42.627 million tons, and the opening capacity was 35.814 million tons. The output was 29.363 million tons from January to November. The opening capacity rose by 5.333 million tons compared with the same period in last year, but the output growth is only around 1.61 million tons. A lot of new capacity was finished in the second half of third quarter and fourth quarter, so it caused large capacity was not released in time. It is anticipated that those capacity will be centralized released in the first quarter in 2017, and the capacity of aluminum may reach a new peak. In consideration of the sharp inventory increase of spot aluminum after Spring Festival, the supply will be faced with enormous pressure. In addition, the problem of direct supply of aluminum liquid will make supply pressure transfer to primary processing field.

From the demand side, the usage of aluminum in construction industry and auto industry was more than 5% and 14% compared with the same period in last year. We can say it has a good performance, but owing to the strict management of real estate market from central to local and the crisis of real estate bubble which was realized by the government, it is anticipated that the expectations of real estate market will not be high in 2017, and the aluminum in construction field may have a small negative growth.

The transportation may be the largest industry of aluminum usage in stead. Up to now, China has invested trillions of yuan in urban rail transit and high-speed railway, and it is the investment priority during the whole 13^th Five-Year- Plan period. In addition, several days ago, China introduced new policies again, and it is about half-pay preferential policy. The policy is that 1.6L automobile acquisition tax rises by only 2.5%(compared with the expiring policy). The customers can still enjoy favorable tax rates of 2.5%(1.6L and 1.6L below). It is anticipated that the increment of household automobile will still have an appreciable growth next year. The increase of aluminum usage in transportation may maintain around 10.5% in 2017.

From the cost side, there is a large price rise of raw material, it caused the sharp rise of smelting cost for aluminum. The production cost has increased from ￥11300/ton in the end of July to￥13400/ton at present. Compared with the current aluminum price which is less than ￥13000/ton, there is still around 55% capacity at a loss. It is anticipated that the cost support of aluminum will be more clear in 2017.

From the macro side, a large amount of working capital which experiences stock market and real estate market entered into commodity market in the second half of this year. It is anticipated that the problems of assent allocation shortage may still exist in 2017. People have a consensus of bubble economy since the real estate starts to be restricted. While in the large context of depressed stock market, the working capital has nowhere but to go to commodity market. In consideration of the commodity periodicity, the rebound trend of commodities’ price is more clear after the weak market for 5 years. The possibility of a slightly strong pattern in 2017 will be larger.

In conclusion, in 2017, the demand of aluminum cannot offset the growth of supply, and the situation of oversupply may still exist. The oversupply of aluminum bar is more serious than aluminum ingot. But in consideration of cost support, large factories jointly supporting value and money speculation, we should not be too pessimistic about the situation of aluminum price in 2017. It is anticipated that the average price in 2017 will rise by ￥300/ton to around ￥12800/ton, and the overall fluctuation interval will maintain ￥12000-15000/ton.