In the short term, the impact of production restrictions in Yunnan on the supply side has already appeared, and inventories have begun to be removed. As production restrictions advance, the supply side will become even more tense.
The Zhitong Finance app learned that Guohai Securities released a research report saying that in the short term, the impact of production restrictions in Yunnan on the supply side has already appeared, and inventories have begun to be removed. As production restrictions advance, the supply side will become more tight. Looking at the long term, the current production limit in Yunnan will further strengthen the logic that long-term supply growth in the aluminum industry is limited. Considering that demand still has growth points, the industry may maintain a high level of prosperity and maintain the industry's “recommended” rating. It is recommended to focus on Yunlu Co., Ltd. (000807.SZ), Shenhuo Co., Ltd. (000933.SZ), Tianshan Aluminum (002532.SZ), China Aluminum (601600.SH), and China Hongqiao (01378).
Guohai Securities's views are as follows:
Supply: The electrolytic aluminum supply side remained tight during the week, and production cuts for electrolytic aluminum in Yunnan continued. Currently, the scale of discontinuation of production has reached about 940,000 tons. The total scale of discontinuation is in line with the basic announcement, and there is no significant reduction in expectations. It is expected that mainstream enterprises will basically complete the discontinuation requirements by around November 20, while electrolytic aluminum companies in other regions will continue to operate steadily. In addition, Inner Mongolia Huayun Phase III announced the construction progress during the week. The unit is currently being installed. According to SMM, the project involves 420,000 tons of electrolytic aluminum production capacity. It is expected that production will begin in the first half of next year, but the available indicators for the project are only about 170,000 tons, and other indicators need to be transferred from within the group. Within the week, the Luliang region announced the environmental control policy for the 2023 winter heating season. Among them, an electrolytic aluminum enterprise in the region had an environmental rating of A grade. The company mainly reduced emissions independently during the environmental control period, so there will be no impact on production for the time being.
Demand: Domestic downstream aluminum processing companies started construction during the week and maintained a weak trend, but the decline slowed somewhat. Currently, orders from construction profile companies have not improved, and the industry's off-season is approaching, and the industry's commencement of construction is mainly weakening. The aluminum sheet and foil industry has entered a low season, and market demand continues to weaken. Overseas demand has yet to show any clear signs of improvement. The spot price of aluminum fell below the 19,000 yuan mark during the week, and downstream stocks were replenished on dips, driving markets in South China and Gongyi to remove stocks, but inventory pressure in the Wuxi region is still quite obvious.
Profit: Domestic electrolytic aluminum costs rose slightly last week, mainly due to a slight increase in regional grid electricity prices in southwest China and other regions, and currently high port inventories and mainstream power plant inventories in the domestic coal market. Coal prices fluctuate mainly in a narrow range. Electricity costs for thermal power and aluminum companies fluctuate less. SMM estimates that as of last Thursday, the average electricity price of the domestic electrolytic aluminum industry was about 0.42 yuan/kilowatt-hour, up 0.007 yuan/kilowatt-hour from last month. As of last Thursday, the immediate full cost of domestic electrolytic aluminum was around 16,260 yuan/ton, up 84 yuan/ton month on month. Spot prices for aluminum were weak during the week, and domestic electrolytic aluminum profits declined immediately. As of last Thursday, the average instant profit of electrolytic aluminum was about 2,670 yuan/ton, down 323 yuan/ton from week to week. Looking at the short term, recent production cuts in the alumina market have caused a lot of disturbance, supporting the spot price to stop falling. The narrow increase in electricity costs in the electrolytic aluminum industry may drive the industry's immediate cost to stabilize around 16,200 yuan/ton. Industry profits may have fluctuated widely under the influence of fluctuations in spot prices.
Alumina: Last week, the Office of the Ecological and Environmental Protection Commission of Luliang City issued a letter for comments on the “Luliang City 2023-2024 Autumn/Winter Differentiated Control Work Plan”. The comment letter mentioned that it plans to implement differentiated control over key industries during the fall and winter of 2023-2024 (November 15, 2023 to March 31, 2024) to reduce pollutant emissions. The opinion letter covered a total of 8 alumina enterprises in Luliang City, involving a total production capacity of 14.6 million tons of alumina. SMM estimates that if the policy is strictly implemented, the theory will affect production by about 431,500 tons. Overall, the supply and demand pattern in the northern domestic alumina market is relaxed compared to the previous period. The southwest market is disturbed by downstream demand for reduced production of electrolytic aluminum, and there is a risk of falling prices. SMM predicts that domestic alumina spot prices will be weak and fluctuating in the short term. In the future, we need to continue to pay attention to the production trends of alumina companies and the progress of aluminum electrolytic production reduction in Yunnan.
Aluminum bars: On the supply side, according to SMM, the country's total aluminum bar production in October (31 days) was 1.33 million tons, a slight decrease of 10,000 tons from September (30 days). The domestic operating rate of aluminum bars in October was 66.4%, and the operating rate in September was 66.5%, a slight decrease of 0.1% over the previous month. There was no significant decline in supply-side performance in October, but it remained at peak season level. There was a clear decline in the overall focus of aluminum base prices last week. Although receiving goods was mediocre, the processing fees for aluminum bars in various regions were still raised. The market performance of the Wuxi region was stable last week. The stock of aluminum bars declined due to the decline in goods, and processing costs rose. Recently, the supply and demand relationship for aluminum bars in South China has stabilized, and stocks have continued to be removed slightly, driving market enthusiasm for receiving goods, and processing costs are rising. There was a clear accumulation of aluminum bars in the Nanchang region last week. According to SMM, the main reason is the decline in downstream demand and the arrival of automobile goods, weak transactions, and rising processing costs. SMM believes that the overall performance of aluminum profile consumers during the peak season in the second half of the year was not as good as expected, and that it will continue after entering the off-season at the end of the year.
Recycled aluminum: The price of A00 spot aluminum fluctuated and adjusted last week. The overall price of scrap aluminum followed the adjustment, but it lagged behind with the rise and fall, and the adjustment was not as great as that of aluminum prices. With the arrival of winter in the north, the commencement of dismantling plants has been affected, orders in the downstream aluminum sector have weakened, and the overall supply of used and new aluminum scrap materials has declined. Demand for downstream orders has not improved. Coupled with the fluctuation in aluminum prices, the willingness to stock up is not high, and purchases are mainly just needed. The price focus of recycled aluminum alloy declined last week. In terms of costs, the supply of raw materials at home and abroad has been tightened recently, making it difficult to procure recycled aluminum plants and reduce production costs. On the demand side, in mid-November, the market generally reported that demand continued to weaken. Due to insufficient orders and market competition, manufacturers lowered their quotes one after another. Last week, the ADC12 price decline increased, the transaction price was inverted with the A00 price, and the price difference widened slightly during the week. On the supply side, due to weakening demand, difficulties in procuring raw materials and production losses, the recent decline in the operating rate of recycled aluminum plants has been the main factor. In terms of imports, the forward price of ADC12 in Malaysia rose to 2,250-2,280 US dollars/ton during the week. Due to the rapid decline in domestic prices combined with the devaluation of the RMB, the immediate import profit and loss turned into a loss. Currently, the loss per ton is in the 200-500 yuan range. Overall, the tight supply situation of scrap aluminum is difficult to resolve in the short term. Costs still support its price. The short-term ADC12 price is expected to be stable, moderate, and weak, and mainly fluctuating.
Pre-baked anodes: The price of petroleum coke fell slightly, while the price of anodes remained flat. As of November 17, the average price of pre-baked anodes was 4835.1 yuan/ton, the same as last week; the average price of medium sulphur petroleum coke was 2408.5 yuan/ton, down 22.5 yuan/ton from last week, down 0.9% from last week.
Risk warning: (1) risk of downstream demand falling short of expectations; (2) risk of policy control exceeding expectations; (3) risk of insufficient power supply; (4) risk of increased supply exceeding expectations; (5) risk of untimely data updates; (6) focusing on the risk that the company's performance falls short of expectations.