Nonferrous metals: Shanghai aluminum stabilizes and rebounds, waiting for demand to recover

Overseas interference still exists, destocking supports prices

At the beginning of 2022, due to ongoing international geopolitical conflicts, energy prices in Europe and other regions continued to rise, causing significant disruptions to the supply side of electrolytic aluminum in overseas markets. At present, electricity prices in Europe remain at a high level, and the cost pressure on electrolytic aluminum plants is enormous. It cannot be ruled out that some aluminum plants may reduce production and shut down.

This year, due to the relatively stable prices of coal and other energy sources, the profit level of electrolytic aluminum plants in China has remained relatively high. At the end of April, the average profit level of domestic electrolytic aluminum production was about 3250 yuan/ton, and the sufficient profit margin is highly attractive for aluminum plants to resume production and new investment. At present, among the domestic electrolytic aluminum enterprises, the cost advantage is significantly concentrated in enterprises with lower thermal power costs such as Xinjiang and Inner Mongolia. The stable price of coal has once again highlighted the advantage of self owned power plants.

In terms of inventory, aluminum ingots both domestically and internationally have shown a slight downward trend. As of early May, LME aluminum ingot inventory has slightly declined and has now dropped to 560275 tons. Domestically, in early May, the inventory of aluminum ingots in the previous period was 147990 tons, and the social inventory of aluminum ingots in China was about 1.068 million tons, with a slight increase in inventory since the May Day holiday.

In April, the domestic situation was significantly affected by the epidemic, and there were still disruptions in transportation and downstream resumption of work. With the gradual effective control of the domestic epidemic in mid to late May, the suppressed downstream demand peak season may gradually recover, and it is expected that aluminum ingot inventory will once again turn into a trend of depletion.

Aluminum exports are booming, domestic consumption may recover in an orderly manner

At the beginning of 2022, China's aluminum exports maintained a high level of prosperity. According to customs data, the export volume of unprocessed and rolled aluminum and aluminum materials in China was about 594000 tons in March 2022, and the export volume from January to March was about 1.6283 million tons, a year-on-year increase of 26.7%, reaching a historical high in the first quarter.

In terms of domestic demand, due to the impact of the domestic epidemic that began in March, downstream aluminum production enterprises and consumption sectors have been significantly disrupted. Many regions in East China have implemented lockdown measures, which have had a significant impact on the material transportation of local enterprises. The double-sided transportation capacity of raw materials and products has decreased, and the arrival of aluminum in mainstream downstream consumption areas such as Shanghai, Wuxi, and Guangdong has decreased.

In general, the regular inventory level of small and medium-sized enterprises downstream of aluminum is around 3-5 days, and the continued outbreak of the epidemic in mid April has caused some enterprises to shut down. With the orderly resumption of work and production in Shanghai and other places at the end of the month, downstream processing enterprises have seen a certain rebound in production, and most enterprises need to replenish their inventory before the holiday. After the May Day holiday, it is expected that downstream aluminum processing enterprises will continue their pace of recovery.