Outlook for aluminum prices this week

Last week the price of aluminum maintained a high trend. After news of Xinjiang Jiarun start cutting production and the Ministry of Industry and Information called the 10 major aluminum enterprises for a meeting, the aluminum price stepped back into rebound channel, but the main futures contract price met heavy resistance at line of 14000 Yuan/ton, and ultimately failed to break through. LME aluminum price was stronger than that of China’s aluminum prices, rising steadily, and successfully broke through US $1900/t.

At present, the supply side: as shown below, at the start of the week inventory of the five major domestic spot market is total 1197 tons, 13 tons more than last week. In addition, in this week, Hongqiao and Jiarun both reduced production, so the dynamic supply was slightly decrease. If the performance of overcapacity cutting policy can not be enforced, the pressure of China’s aluminum price will only increase.

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Demand side: this week because the financial institutions are in half-year audits, primary aluminum enterprises face great pressure, while under tight cash flow, downstream processing enterprises have to reduce purchases, resulting in serious oversupply. In Shandong market even continues to offer discounts of 160 yuan/ton. In addition, according to my research, this week, polarisation between large processing plants and small processing plants is obvious. Large factories (annual production capacity more than 100 thousand tons) have sufficient orders and also easier to access bank loans, so their production is in good condition. However small processing plants (capacity under 30 thousand tons) are in worse, because of less strength and industry off-season together with little favor from financial institutions.

Cost side: this week alumina prices are basically stable, part regions have slightly lower amplitude around 10 yuan/ton, but the price of pre-baked anode rise again. According to my estimates, as of Monday spot cost of smelter has been up to 13469.8 yuan/ton, up 32 yuan/ton since last Friday. Fortunately, the spot price is strong, most of electrolytic aluminium enterprises are able to remain profitable, but profit margins are narrow again.

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Taken together, the current supply and demand is not optimistic, under the premise of slowly overcapacity cutting of the Chinese government while new capacity emerged constantly in Mongolia, Shanxi, Guangxi, Guizhou and other places. In the short term, the oversupply situation is difficult to be changed. The market’s attention is mainly concentrated on the local government’s announcement of illegal capacity verification results following the June 30th deadline. In addition the rising integrated cost of aluminum enterprises formed strong bottom support of aluminum price. In conclusion, under the effects of long-short intertwined, it is expected that aluminum price is still difficult to have a breakthrough next week, the news may boost short-term rise, but will be constrained by the weak fundamentals. Main aluminum futures contract of SHFE will operate at 13600-14100 yuan/t. LME aluminum will hover around the $1900/t line.