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Demand Is Expected To Pick Up, The Market May Stimulate Aluminum Prices To Rise
Nov 22, 2018

Demand is expected to pick up, the market may stimulate aluminum prices to rise


Since the end of August, worries at the demand level have continued to weigh on aluminum prices. As a result, Shanghai aluminum futures prices have fallen by nearly 9%, and aluminum concept stocks have also fallen sharply. The brokerages believe that under the supply-side reform policy, the effect of electrolytic aluminum destocking is significant; environmentally-friendly production limits lead to higher raw material costs, and supply-side volume is blocked; in the first three quarters, electrolytic aluminum consumption slowed down, and with the recovery of downstream industries, demand is expected to pick up in the future. Aluminum price.

Aluminum market downturn

Since August 31, Shanghai Aluminum Futures has accelerated its decline. By November 16, the main contract has fallen by 8.96% or 1,355 yuan/ton, and closed at 13,760 yuan/ton. LME aluminum prices have also fluctuated since October 4, with a cumulative decline of 13.27%, currently closing at $1,947/ton.

Last week, Shanghai Aluminum saw its momentum stabilized and rebounded 0.15% throughout the week. The average price of spot aluminum in the Yangtze River last week was 13,764 yuan / ton, up 100 yuan / ton from the previous week, an increase of 0.73%. The market price of scrap aluminum was stable and the market price of aluminum alloy ingots fell.

“As the slowdown in China’s economic growth has triggered new demand concerns, the metal market has performed generally. The average weekly price of scrap aluminum has declined slightly, the smelter’s enthusiasm for procurement is not high, and market demand is relatively low,” said Zhu Shanshan, an analyst at Zhuo Chuang.

According to Fubao information, inventory, 341,000 tons in Shanghai, 628,000 tons in Wuxi, 99,000 tons in Hangzhou, 76,000 tons in Gongyi, 209,000 tons in Nanhai, 51,000 tons in Tianjin, 25,000 tons in Linyi, Chongqing 24,000 tons, inventories of aluminum ingots totaled 1.453 million tons, a decrease of 32,000 tons per week.

Huatai Futures said that at home, the current aluminum price is far below the industry average cost, and the cost is still moving up slightly. As a result, the production capacity of electrolytic aluminum production due to losses continues to increase. At present, the newly added capacity of electrolytic aluminum is still more than the production capacity reduction, and the inventory is still 1.41 million tons. Therefore, even if the current destocking status is maintained, the current estimated supply gap is still insufficient to rapidly reduce the inventory of more than 1 million tons, and downstream. Gradually entering the seasonal off-season, aluminum prices are expected to remain weak and volatile.

Considering that the cost of low-cost regions such as Shandong has far exceeded the current aluminum price, Huatai Futures believes that if the aluminum alloy enterprises reduce their production by a large amount due to losses in the future, it is expected that the aluminum price will stop falling and rebound, so it is expected to remove the support of the heating season. There is still support, but the effectiveness of support still depends on whether there will be a reduction in production of electrolytic aluminum enterprises in the market. On the other hand, from a dynamic point of view, the newly added production of electrolytic aluminum in the fourth quarter will put pressure on aluminum prices, but if the price falls again, it will also affect the release rate of new capacity.

Demand is expected to pick up

The A-share aluminum stocks also performed weakly. The Shenwan Aluminum secondary industry index has fallen by 35% since the beginning of the year. Individual stocks such as Mingtai Aluminum have fallen 22.82% since the beginning of the year.

Industrial Securities analyst Qiu Zuxue said that the price of electrolytic aluminum standard has fallen so far, and the valuation has been extremely low in recent years.

But in fact, the profitability of electrolytic aluminum companies has generally improved in the past two years, and the balance sheet is gradually being repaired. On the one hand, the stock price fell sharply, and on the other hand, the profit rebound of the major companies in the industry, which directly led to the current low valuation of electrolytic aluminum enterprises in recent years.

Qiu Zuxue pointed out that positive factors in the industry continue to accumulate. First, the expansion of electrolytic aluminum capacity has been curbed. On the one hand, compliance indicators determine the ceiling of the industry's production capacity; on the other hand, the provincial power policy environment improves. Up to now, the production capacity of electrolytic aluminum since the beginning of the year is actually much lower than the market expectation at the beginning of the year. Second, optimistic about the demand for electrolytic aluminum in 2019. In 2018, due to environmentally-friendly production at the beginning of the year, some processing enterprises' production and some terminal demand were delayed. In addition, the macro-level de-leverage led to tight capital and pressure from external disturbances, which led to a decline in overall demand growth. In 2019, consumption itself is expected to increase. In 2019, the infrastructure supplement board is expected to increase the expenditure on real estate construction, and the relative improvement in production and sales of the automobile industry will boost the consumption of electrolytic aluminum.

Southwest Securities believes that under the supply-side reform policy, the effect of electrolytic aluminum destocking is significant; environmentally-friendly production limits lead to higher raw material costs, and supply-side volume is blocked; in the first three quarters, electrolytic aluminum consumption slowed down, and with the recovery of downstream industries, demand is expected to pick up in the future. Aluminum price.


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