The center of gravity of aluminum prices moved down in October
According to the Commodity Market Analysis System of Business Society, as of October 31, 2023, the average price of domestic aluminum ingots in the East China market was 19093.33 yuan/ton, a decrease of 3.84% compared to the aluminum price of 19856.67 yuan/ton at the beginning of the month (October 1).
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In the long term, the current price is in a sideways range after a high decline. Since May, the price has been fluctuating below 19000 yuan/ton, breaking through 19000 yuan/ton at the end of August. In September, aluminum prices first fell and then rose, and in October, the center of gravity of aluminum prices returned to around 19000 yuan/ton.
Overview of Fundamentals
Expected reduction in production at the supply end
Supply side: There is news on the market that Yunnan will reduce production recently. Relevant departments in Yunnan Province and electrolytic aluminum departments have jointly met to discuss the electricity consumption situation in the industry during the dry season. Electrolytic aluminum enterprises in the province are expected to reduce production by 22%. Next week, the production reduction ratio of each electrolytic aluminum factory will be determined and implemented, with a production reduction scale of up to one million tons. In addition, the remaining 200000 tons of new production capacity of Baiyinhua Aluminum Power will be electrified and put into operation. Overall, the operating capacity of domestic electrolytic aluminum is expected to decrease.
There is a weakening pressure on the demand side
In the peak season of October, the performance did not meet expectations, and there were insufficient new orders. The off-season pressure is beginning to show, and future demand is facing weak pressure. The orders for building profiles have slightly increased, but the overall strength of the building profile sector is still weak. In the industrial profile sector, orders for photovoltaic profiles have significantly decreased due to the continued weakness of the photovoltaic industry chain, while automotive profiles have remained stable.
Narrow fluctuation in cost
Cost side: The spot market for alumina continues to rise due to supply side production cuts. The prices of coal at ports and pitheads have shown a downward trend, and the mainstream self owned power plants in Shandong have once again lowered their coal procurement prices for November. The immediate full cost of electrolytic aluminum is around 16231 yuan/ton, a month on month increase of 33 yuan/ton. The recent pressure on coal prices has to some extent limited the expected increase in future electricity costs for electrolytic aluminum. In addition, the expected decrease in procurement prices for auxiliary materials such as pre baked anodes in November is expected to hedge against a slight increase in alumina, and it is expected that the short-term domestic electrolytic aluminum cost will mainly fluctuate within a narrow range.
Inventory increased month on month
In terms of social inventory, following the start of destocking in the second half of July, inventory is relatively low. As of October 30th, the social inventory of mainstream electrolytic aluminum ingots in China was 612000 tons, with a cumulative inventory of 57000 tons compared to October 7th. Based on year-on-year data, it is close to the 636000 tons in the same period of last year’s post holiday history and still at a low level in the same period of the past five years.
Future market forecast
Electrolytic aluminum production enterprises mainly maintain stable production and have large operating capacity. Currently, there is a surplus of aluminum ingot inventory after the holiday, and the supply of aluminum ingots is sufficient, which suppresses aluminum prices. However, the demand in the downstream peak season is partially fulfilled, with strong cost support and narrowed downward space. There are expected production cuts and bonuses in the near future, and aluminum prices may fluctuate slightly in November.
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