Mystery of the hottest spot inventory rise of elec

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At present, the process of cleaning up and rectifying illegal production capacity of electrolytic aluminum has entered the central verification stage. Since July, there has been continuous information about the shutdown of illegal production capacity, which has greatly pushed up the futures price of electrolytic aluminum and the stock market. However, we have always been paying attention to a focus of the market, that is, we have seen high-frequency data. Spot inventories in five places, including Shanghai, Wuxi, Hangzhou, Nanhai and Gongyi, have continued to rise slightly, reaching 156. 5% on July 5 50000 tons, which is the highest water high-precision sensor level in history

since this week, the aluminum sector has experienced a continuous correction, and the aluminum price has also fallen below 16000 yuan/ton. At the current time point, we are once again firmly looking at the aluminum price and the electrolytic aluminum sector. In mid to late September or October, when the production of electrolytic aluminum was reduced, with the accelerated shutdown of illegal production capacity before the end of the central inspection on September 15, the situation of inventory accumulation will definitely reverse in direction, the inflection point of the fundamentals of the electrolytic aluminum industry will come in an all-round way, and the monthly supply and demand gap will appear obviously

in order to further dispel your confusion and strengthen your confidence in electrolytic aluminum supply reform, we are honored to invite Mr. Shi Fuliang, President of Aladdin Research Institute, a senior domestic aluminum industry research institution, to introduce you to the current situation of electrolytic aluminum supply reform and fundamentals, and uncover the mystery of the rise of spot inventory for you at the same time

the mystery of inventory rise

1 Why does inventory continue to rise

first, driven by high profits. At present, when the aluminum price reaches more than 16000 yuan, the profit per ton of aluminum should be unprecedented in recent years. The average cost is from August to 13500 yuan, and the profit of electrolytic aluminum is very high. This will bring three impacts. First, the illegal production capacity that should be reduced has not reached the policy deadline, and the actual shutdown progress is relatively slow. According to our statistics, there are more than 1 million tons of production capacity that has not been stopped; Second, the idle capacity that was originally high cost and unprofitable was restored to production driven by high profits. This volume is roughly 5 million tons, and all should start from their respective perspectives; Third, under high profits, from the perspective of aluminum factories, they will quickly ship goods and return to cash flow. I believe that the goal of each factory is to have zero inventory, which accelerates the transfer of inventory from the factory to social inventory

second, environmental protection supervision brought about the shutdown of aluminum processing plants, which increased the social inventory of aluminum ingots. Since this year, the implementation of environmental protection supervision has been very strong. For Xinjiang, the continuous high-pressure situation since this year has directly affected the local aluminum processing (about 500000 tons), resulting in the intermittent production of the factory, resulting in a significant decline in the amount of molten aluminum they purchase in the factory. The primary aluminum you produce is either processed from molten aluminum to aluminum rods, or directly cast ingots. When the purchase of downstream processing plants decreases and the sales of molten aluminum decreases, you will increase the amount of aluminum ingots, and the aluminum ingots will increase accordingly. In fact, the output data of primary aluminum has not increased much. After removing the production capacity, the production capacity of primary aluminum is declining. Because aluminum ingots correspond to the warping plates of aluminum rods, there are more here and less there. They need to speed up the production of aluminum ingots and put them on the market in exchange for cash flow, which is a factor to increase inventory

third, when closing the electrolytic cell, the recycled aluminum water should be pumped out of the ingot, which also impacted the spot market and increased the inventory of aluminum ingots. These three factors have caused periodic increases, and the increase of inventory still cannot reflect the whole primary aluminum market. Aluminum ingots are dominant. Our sales of molten aluminum have declined, and the production of primary aluminum has not changed. If we add the supply side reform, the production of primary aluminum is declining. This is the inventory of aluminum ingots we see on the surface. I think you should understand this. Moreover, the current consumption is relatively in a low season. From the order volume of downstream processing we know, it is also a little less. When the supply of aluminum ingots increases, everyone's concerns come. In October or late September, inventory will decline, and downstream consumption should increase. I think this is a phased problem. That's all for inventory

2. Social inventory is expected to decline in September and October at the latest, and then a tight balance will be formed

1) the actual output reduced by 4million tons due to supply transformation, affecting the shutdown of production capacity of 4.66 million tons

in fact, from the beginning of this year to the first ten days of September, the actual production reduction due to supply and transformation factors was 3million tons, and some of them were new production capacity that had not been put into operation. If this part was added, the biggest impact on the production capacity was 4.66 million tons. By October 15, the final rectification of illegal production capacity will be completed, and the production will be reduced by 1.04 million tons. I am very confident that the policy will be implemented in place. The impact of more than 4.6 million tons is also unprecedented in history. Let's think about the market in 2015. At the end of 2015, it fell to 9700 yuan. At that time, the market led to the gradual reduction of factory production, and then resumed production. At that time, it stopped for more than 4 million tons

2) in the heating season, the production of electrolytic aluminum in 2+26 area is conservatively limited, affecting the output of 10000 tons

according to the air pollution action plan, it is a conservative guess that even if we take Weiqiao's production capacity of 2.68 million tons as a premise and no longer limit production by environmental protection, other relevant production capacity should also be shut down by 10000 tons. Coupled with the supply and transformation, that is, the scale of production reduction capacity of more than 5million tons, which is the largest scale in history. If the production limit in the heating season is further higher than expected, and Weiqiao will further shut down 30% of its production capacity, the scale of production reduction will be much higher than expected

3) the monthly output has declined from the inflection point in August

in the past, there were more than one million tons of surplus every year. This year, there will be a reduction of more than 5 million tons per year. You can imagine that the reduction of more than 400000 tons per month will also lead to major changes in the structure of our supply and demand. It is not fully reflected now, and there are still many hardness test methods for production reduction. According to our preliminary statistics, the output in August was 3.13 million tons, compared with 3.18 million tons in July, a decrease of 50000 tons. I believe there will be a larger reduction in September, and there will be a shortage. The figures of the whole year are still surplus because there has been a large amount of surplus in the first half of the year, but the turning point in the second half of the year has begun to appear

4) social inventory is expected to decline in September and at the latest in October, and then a tight balance pattern will be formed

because the supply of output has just begun to turn, it will take time for it to be transferred to social inventory. If it comes to September or October at the latest, I believe this inventory will also fall, and our supply-demand structure has also changed greatly. From the perspective of basic reasoning, I am very optimistic about the future market, and under the big policy environment, at least the tight pattern of supply and demand in our market has been formed. I can't say that there will be a sharp shortage every year, a shortage at a certain stage, and a tight balance over a long time span will appear

3. With the illegal shutdown, replacement of capacity indicators and resumption of idle capacity, the current capacity utilization has reached a very high level

up to now, the national operating capacity is 36.24 million tons. At the peak, it was 38.5 million tons, and now it has been reduced to more than 200 tons. Due to the recent announcement of the elimination of some new ones, our built capacity is also declining, down to 43 million tons, and 6.76 million tons are idle. This idle capacity includes the parts to be shut down, the parts to be replaced and the parts to be opened. Considering that the shutdown capacity has been close to 3million tons, up to 3.76 million tons can be replaced. First, use external forces to push the jaws or prepare to open it yourself. As the shutdown deadline is approaching, there is little room to replace the capacity. For example, many of the planned capacity in Guangxi next year are newly built by capacity replacement indicators, and there are indicators left in Henan Province to prepare to build factories, which will not be released in the short term. In addition, the current profits are so high, The production capacity ready to resume production is also close to the peak. It can be said that the capacity that can be opened next is quite limited

4. Clear up the four accounts and be aware that one policy will not control a big gap, but the monthly gap and the long-term balance of the electrolytic aluminum industry are very clear

first, at present, the built capacity of 43 million tons is likely to open, that is, 3.76 million tons. At present, the utilization rate of industrial capacity is 91%; If 3.76 million tons can't be opened in the short term, the current operating rate may have risen to more than 95%

second, the current operating capacity is 36.24 million tons. With more than 1million tons of illegal capacity really accelerating the shutdown when the policy deadline comes, the operating capacity will fall to the level of 35.2 million tons, which is the same as the overall consumption of 35 million tons in 2017; If environmental protection limits production and brings another 10000 tons of output reduction, there will be a clear shortage in the monthly sense

third, considering that there is still about 8% consumption growth in 2018, the consumption will increase by 2.8 million tons in 2018 (among which, the demand for aluminum formwork for construction is expected to exceed the expectation). Even considering the new compliance production capacity in 2018 (including the replacement of production capacity indicators and the new batch of Guangxi Secondary entrepreneurship indicators), the new production capacity will be roughly 3million tons, and the actual output increase may be 2million tons, which makes next year, It will also maintain a tight balance throughout the year. Considering that consumption is growing steadily, but there is a time lag in the production capacity, there is still a high probability that there will be a shortage at the monthly level

fourth, looking further ahead, the existing capacity replacement indicators will be exhausted in the next few years, while the approval of new capacity will continue to be suppressed by policies, and aluminum demand has remained strong (the demand for aluminum templates for construction is expected to exceed expectations), which will bring two results: first, from the industry level, supply and demand will continue to maintain a tight balance, and aluminum prices and profits per ton of aluminum are expected to maintain a high position; Second, at the company level, companies such as Chinalco and Yunnan Aluminum that make capacity layout in areas encouraged by policies will benefit from the volume and price rise of compliant capacity

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