Recently, aluminium prices have excelled. Following last Friday’s sharp rise, this week continued to work hard and again moved near the previous high. As of May 13, the Shanghai Aluminum 1906 contract closed at 14225 yuan/ton, with two consecutive trading gains of 1.6%. At present, the stock of society continues to decline, and the rising price of alumina pushes up the cost line. It is expected that the short-term oscillation of aluminium price will be strong, while the medium and long-term supply pressure will continue to be faced.

The macro-level is not good for the time being.

Previously, the official PMI of manufacturing industry in April was 50.1 and Caixin was 50.2, which were all down from March. At the end of April, the increase of social financing scale was 1.36 trillion yuan, which was 408 billion yuan less than the same period last year. In April, RMB loan was 102 trillion yuan, which was 16.15 billion yuan less than the same period last year. Export growth in April was -2.7% year-on-year, lower than expected by 3.0%, down from 14.2% of the previous value. No agreement was reached in the Sino-US trade negotiations. The United States has imposed tariffs on 200 billion US dollars of imported goods from our country. At the same time, it threatens to start the relevant procedures of taxing 25% of the remaining 325 billion US dollars of imported goods from our country. On the evening of May 13, China introduced counter-measures to raise tariff rates on some imported goods originating from the United States. The tariff rates have been implemented since 10:00 on June 1, 1919.

Cost Line Continues to Move Up

Domestic alumina prices have been declining since September, 2018, reaching a low of 2645 yuan/ton since August 21, 2017 on April 15, this year. The decline in alumina prices has gradually touched the cost line of some smelters. At the same time, with stricter environmental control, production cuts and shutdowns have begun to increase, and the price of alumina has rebounded. Recently, the environmental protection news of Shanxi has been frequently reported. The intersection of Lvliang area and Xiaoyi have been successively reported by the media about the dust and leakage of red mud reservoir. The red mud emission problem of alumina plants in Shanxi Province may face environmental protection inspection, which will cause the market to worry about the decline of alumina supply. Recently, some alumina factories in Shanxi Province have been ordered to suspend production due to environmental protection supervision. Two production lines of 2.8 million tons of alumina have been suspended due to the red mud problem. The remaining two production lines will be suspended in recent days. Xiaoyi Huaqing Aluminum Industry has been forced to suspend production due to the local environmental pollution of 450,000 tons of alumina. The price of alumina continued to rise. As of May 13, the average price of SMM alumina was 2,803 yuan per ton. As the price of alumina rises, the cost line of electrolytic aluminium continues to move up, which supports the price of electrolytic aluminium.

Increased decline in output

The data show that the total domestic production of electrolytic aluminium in the first four months is 11523,000 tons, a decrease of 1.42% compared with the same period last year. In the first four months of 2019, it continued to be affected by the loss reduction of electrolytic aluminium enterprises from June 2018 to February 2019, thus keeping the operating capacity scale relatively low. Since April, although some of the production capacity has gradually resumed, its contribution to the overall production in April is limited. At the end of April, the domestic capacity of electrolytic aluminium was 36.23 million tons, and the average start-up rate of the industry was 88.8%, which was 0.3 percentage points higher than that at the end of March. But after May, the contribution of re-production to production increased gradually. It is estimated that the output of electrolytic aluminium in May will be 3.025 million tons, a decrease of 1.56% compared with the same period last year, and the reduction of output growth rate will be narrowed. Under the steady consumption situation, the domestic stock level of electrolytic aluminium is expected to drop to 1.3 million tons by the end of May.

Generally speaking, in the short run, alumina production is affected by environmental protection in Shanxi, and the rising alumina price pushes up the cost line. At present, the overall profit of electrolytic aluminium has been repaired, which leads to the acceleration of resumption. However, the contribution of short-term output is limited, and the inventory declines rapidly in the peak consumption season. It is expected that the short-term aluminium price will continue to be strong. However, in the medium and long term, the new capacity of alumina is still at a high level during the year. The price of superimposed grid power is lowered, the new production and re-production capacity are increased, the supply pressure will gradually appear, and the price of aluminium is facing pressure.