Zhongtai Securities pointed out that the resumption of domestic electrolytic aluminum production and the acceleration of production are still difficult to change the tight supply and demand pattern, and the aluminum price is expected to remain high under the support of low inventories.
1) The resumption and commissioning of domestic electrolytic aluminum enterprises have significantly accelerated, raising domestic electrolytic aluminum supply expectations
During the 21-year water storage and optimal scheduling, more water came in during the 22-year dry season, and the supply of water and electricity was abundant. In addition to the current off-season of electricity consumption, the policy supports electrolytic aluminum enterprises to resume and put into production.
As of February 22, Yunnan's green aluminum projects have increased the electricity load by nearly 1 million kilowatts compared to before the increase, releasing more than 600,000 tons of hydropower aluminum production capacity. It is estimated that by the end of March, the province's hydropower and aluminum projects will reach 4.3 million tons, and the capacity utilization rate will reach 80%.
In terms of resumption of production, as of March 25, the total domestic resumption scale was 1.68 million tons, with a resumption rate of 61.2%, of which the resumption scale in Yunnan Province was 940 thousand tons, accounting for 55.95% of the national scale, and the domestic production scale to be resumed was 1.067 million. ton, of which the scale of production to be resumed in Yunnan is 400,000 tons, accounting for 37.49% of the national scale. Under the current policy and power supply environment, it is expected that domestic electrolytic aluminum enterprises will maintain a relatively fast pace of production resumption.
In terms of new production capacity, as of March 25, the newly invested electrolytic aluminum production capacity in China was 320,000 tons, and the electrolytic aluminum production capacity to be put into production was 2.29 million tons, of which Yunnan Province’s newly commissioned production capacity was 220,000 tons, accounting for 68.75% of the total domestic production scale. The production capacity to be put into operation in Yunnan is 1.16 million tons, accounting for 50.66% of the total domestic production capacity to be put into operation. Under the current policy and power supply environment, it is expected that domestic electrolytic aluminum enterprises will still maintain a relatively fast production rhythm.
2) Although there are signs of easing overseas geopolitical tensions, the recovery of electrolytic aluminum production still takes time
On the one hand, previous geopolitical tensions have further raised energy prices in European states. Since the summer of 2021, energy problems in Europe have become increasingly intensified. Energy shortages have led to soaring electricity bills in Europe. Under profit compression, European aluminum plants have passively reduced production. The annual production capacity of electrolytic aluminum has been reduced by more than 875,000 tons.
On the other hand, geopolitical tensions have increased the instability of electrolytic aluminum-packed cheese production. On March 1, Rusal announced that due to the inevitable logistics and transportation challenges in the Black Sea and surrounding areas, it had to temporarily close the Nikolaev region in Ukraine. production at the Nikolaev alumina refinery, and Australia announced that it would stop exporting raw materials such as alumina and bauxite to Russia. Although the current geopolitical tensions are showing signs of easing, it will take time for the production of electrolytic aluminum to resume, and the annual output will still be affected.
3) On the demand side, external demand is still strong, and domestic demand is yet to be transmitted by policy
Compared with the manufacturing PM data of the world's major economies, the United States and the euro area are still at a relatively high level of prosperity, and overseas economies still have strong demand for electrolytic aluminum consumption. The decline in demand for electrolytic aluminum under the background of shrinking liquidity: After the domestic policy has continued to increase since the end of 21, the policy has continued to increase. However, considering factors such as the time lag of policy transmission and the disturbance of the epidemic, it is expected that it will take time for domestic demand to recover.
At present, global demand remains at a high level, but from a long-term perspective, the future demand for electrolytic aluminum is still a race between overseas liquidity contraction and domestic steady growth.
4) Inventory: Inventory in 2022 will be at a historically low level
As of March 25, the social inventory of domestic electrolytic aluminum ingots was 1.039 million tons, a year-on-year decrease of 16.95%.
Overseas, benefiting from the gradual control of the global epidemic, combined with the European energy crisis and geopolitical tensions, it is difficult to see an increase in overseas electrolytic aluminum. The LME inventory continued the trend of destocking throughout the 21-year-old. As of March 25, the LME inventory was 67.81 10,000 tons, a year-on-year decrease of 64.79%, the lowest level since 2016.
5) The resumption of domestic electrolytic aluminum production and the acceleration of production are still difficult to change the tight supply and demand pattern, and the aluminum price is expected to remain high under the support of low inventory
Supply side: Although the resumption of domestic electrolytic aluminum production and the speeding up of production have boosted domestic electrolytic aluminum production, the previous geopolitical tensions further impacted the stability of overseas electrolytic aluminum production, and overseas electrolytic aluminum production will be affected to a certain extent.
Demand side: The Federal Reserve has started the cycle of raising interest rates and shrinking the balance sheet, and the trend of overseas economic highs and declines has been established, dragging down overseas demand for electrolytic aluminum, while domestic demand still needs further efforts to stabilize growth policies. It is expected that the growth rate of global electrolytic aluminum demand in 2022 will be has fallen back.
On the whole, according to estimates, the tight supply and demand pattern of global electrolytic aluminum in 2022 will still be difficult to change. Under the support of low inventories, aluminum prices will remain high.