Winter for China’s aluminum industry

As summer approaches, its winter for China’s aluminum industry.

Whenever China is entering into the hot summer, the downstream processing factories will enter to their low production season. The demand from downstream will get soft. For example, the construction work which will be done outdoors slows down because of the hot weather. Construction is the largest aluminum consumption in China’s aluminum structure, so any slowdown in this sector is reflected in demand for the metal.

The tight control of China’s real estate market had caused the housing secondary market to drop. Based on Market Research Institute statistics, since March Beijing second-hand housing market turnover continued to decline. In May, the second-hand housing market actual signing volume decreased by 34.2% compared to the same period in April. The new customer registration volume also fell by 11.9% in May compared to the same period last month. Turnover of second-hand housing is a barometer for the amount of activity in home renovations, which is a good potential market for items such as extrusions for window frames and shower screens. A slowing market as we enter Summer likely means less renovation activity.

Also many medium and small processing factories will reduce their production due to hot processing equipment in the factories under hot weather.

The third batch of central environmental protection inspections just finished on the last day in May. 2017’s tight environmental control caused many small aluminum processing factories to stop production.

The lack of clarify about the production cuts also drives the price lower. Since the “control aluminum illegal capacity” news was released in April and May, we did not see any real cuts since then. On the contrary, we see the aluminum operating capacity rate keep rising since January.

At the end of each month, the aluminum smelters have tight financial situation for paying bills, salary and loans, etc. Most orders have been filled before the Dragon Boat festival. The demand became low after holidays when smelters still have ingots in stock.

Inventory had a rise since May 25^th till today. The physical inventory increased 12Kt in a week. The increasing supply plus weak demand soon show some impact on the aluminum price.

Changjiang price dropped RMB190 to RMB13750 after the Dragon Boat Festival at the end of May. SHFE active price fell to RMB13715 at the last trading day in May.

We have seen there are plenty of aluminum smelters will start their new project in second half this year, it will create lots of pressure on the aluminum price. We should say the aluminum price is entering its Winter season as Summer arrives.

Acknowledgements to 7themes.com for the image.