Outlook for aluminum prices this week

Last week, aluminum prices appeared first fell then rose, influenced by the surged production and weak demand at the beginning of the week. After news of strict control of electrolytic aluminum production capacity in Xinjiang began to spread in the market, aluminum prices were briefly boosted. But the market became suspicious about the implementation efforts of these documents. Aluminum futures main contract of SHFE were at 13600-13900 yuan/ton range.

As shown below, to Monday total inventory of the five largest spot markets in China is 1208.8 tons,15 KT more than last week. In addition, Chinese electrolytic aluminum production has exceeded 3.15 million tons in May, a record high. The rising supply has caused sustained pressure to aluminum prices, and with the further production increase of aluminum plant and slow progress of cutting overcapacity, Chinese aluminum supply will increase in the short term .

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The demand side: Differences between North area and South area are obvious, with the hot weather coming, Markets in Northern China began to enter industry off-season consumption, coupled with environmental supervision. These factors have huge influence to the aluminum processing industry, especially small and medium processing factory in the Beijing/Tianjin/Hebei region and surroundings. According to my research, comprehensive operating rate of aluminum processing plants in Tianjin and surrounding areas has been less than 60%, while the downtime ratio of small processing plants (less than 30 thousand tons) in Tianjin, Hebei area has exceeded 80%. Markets in Southern China are mainly for industrial aluminum production, and the impact of environmental protection is narrower, resulting in an inconspicuous shift off-season. The overall demand is better than in the north, but on the whole, the country overall consumption decline has become an inevitable trend.

Cost: According to my estimates, by the end of May the monthly weighted cost of Chinese aluminum factory is 12723 yuan/ton, compared to more than 13500 yuan/ton price of spot aluminum, so smelters can still maintain a high profit. But in June, with further increases in the prices of raw materials, the instantaneous cost of aluminum yesterday has been up to 13379.6 yuan/ton. Compared with aluminum prices at present, profit margins have narrowed sharply. from cost side, and the space for aluminum prices to fall further is not large.

The recent news in China is relatively quiet, no other news apart from a paper from Xinjiang development and Reform Commission on address illegal capacity. Meanwhile the international market is constantly dealing with “black swans” - Qatar suffered from break off diplomatic relations, Trump caught up fighting internal battles and not focusing on legislation or policy, together with the dollar index rebounding slightly, all form the adverse effects of LME aluminum.

Overall, current market factors are mainly bearish, but the instantaneous cost of aluminum factory for price support also can not be ignored, and taking into account that the local government will meet publicity period of Inspection and verification of illegal production of electrolytic aluminum in late June, may form a certain positive to aluminum price . In the next week, the aluminum price is mainly expected to weak consolidation, but the overall fluctuation is not large, running range of the SHFE aluminum main contract is at 13600-13900 yuan/ton; the international LME aluminum price is maintained at $1,850 - $1,920/ton.