The Zhitong Finance App learned that the business news agency published an article stating that in 2024, the price of aluminum is likely to rise first and then fall, reversing the “V” operation, and the overall price may rise. After reaching a new high in 2021-2022, the aluminum price trading logic will gradually shift from macro pricing to supply and demand pricing. Looking at the fundamentals of supply and demand, it is expected that in 2024, domestic aluminum supply will be low and then high, with a mismatch between supply and demand in the first half of the year, and the market will be relatively strong; supply will gradually ease in the second half of the year, compounded by uncertain coal prices. Electricity costs for self-owned thermal power plants may loosen, cost uncertainty will increase, and there is a risk that aluminum prices will move down a high level. Throughout the year, aluminum prices rose due to the central rise in alumina prices, which combined with macroeconomic benefits to support the upward movement of aluminum prices.

According to the Commodity Market Analysis System, the average annual price of the domestic aluminum ingot East China market in 2023 was 18743.84 yuan/ton, up 4.80% during the year. Overall, aluminum prices continued the wide fluctuation trend since the second half of 2022. On the emotional side, early market expectations are trading, and strong economic expectations and weak reality after the epidemic is liberalized are playing a game. Fundamentally, supply disturbances dominate price fluctuations. On the one hand, the green electricity factor caused the import window to open from time to time due to green electricity factors, when production capacity in the southwest was reduced and production resumed, and production output was unstable; on the other hand, due to suppression of overseas aluminum prices, internal and external price differences caused the import window to open from time to time. However, domestic demand was better than expected, and low inventories supported the bottom of aluminum prices in 2023. In 2023, aluminum prices showed strong resistance to falling and lacking a strong driving force for the time being.

Average downward: Looking at the long term, aluminum prices in 2023 are in a sideways fluctuation range after falling back from a high level. The average annual price began to decline from 2022, falling from 1999.5.56 yuan/ton in 2022 to 18743.84 yuan/ton.

Fluctuations have slowed down: The absolute value of aluminum price amplitude in 2023 is 2,150 yuan/ton, far lower than 6436 yuan/ton in 2022, 9,500 yuan/ton in 2021, and 5,863 yuan/ton in 2020; the 2023 aluminum price fluctuation fell back to 11.47%, ending the intense high fluctuation in the market since the epidemic.

Low inventory level: The average annual inventory value of aluminum ingots in 2023 was 690,000 tons, far lower than the average annual inventory since 2017. Currently, the inventory has clearly gone to storage. As of January 15, 2024, the stocks of electrolytic aluminum in China's main market were 435,000 tons, which is an absolute low in history.

2023 aluminum price trading logic: shift from macro pricing to supply and demand pricing

Aluminum prices in 2021-2022 were greatly affected by macroeconomic factors. Prices fluctuated greatly, the early profit pricing mechanism failed, and the main transactions were mainly macro-pricing. Overseas macroeconomic trends in 2023, compounded by a good profit level per ton of aluminum in domestic aluminum factories. The domestic production cost range of electrolytic aluminum was 16,000-17,000 yuan/ton. The market gradually returned to fundamentals and began trading factors affecting supply and demand. Continued high interest rates in 2023 suppressed investment, causing aluminum demand (mainly manufacturing, real estate, and consumer consumption) in developed economies to drop markedly. Overseas aluminum consumption grew negatively by 2.81%, but strong domestic consumption in 2023 led to a 2.57% growth rate of global demand. On the supply side, global production increased slightly by 2.45% due to the large-scale resumption of domestic production in Yunnan in the third quarter.

It is expected that in 2024, the aluminum price trading logic will continue to be dominated by supply, demand and cost, and the influence factors of macroeconomic factors will gradually weaken. Aluminum prices in 2024 focus on the fundamentals of supply and demand. Combined with historical data, we have the following expectations:

Supply side: In 2024, aluminum supply will be low, then high, and will grow at a slow rate throughout the year

1. The total production capacity is close to the ceiling, and growth is limited in 2024.

Since supply-side structural reforms were implemented in 2017, China's illegal production capacity for electrolytic aluminum has been shut down one after another, and the disorderly expansion of production capacity has been brought under control. Currently, the upper limit of China's medium- to long-term total production capacity is about 45.4 million tons/year, and the capacity ceiling is relatively stable, and new production capacity needs to be achieved by replacing the original production capacity indicators. In 2023, China's electrolytic aluminum production capacity was about 44.7 million tons, close to the production capacity ceiling. With the start of production in the southwest region in Q3 2023, the domestic electrolytic aluminum operating capacity reached 43 million tons in mid-late September, a new record high. In 2023, the production of electrolytic aluminum was 41.4 million tons, up 3.5% year on year.

2. New domestic production was put into operation, and the increase was concentrated in the second half of the year.

The increase in domestic aluminum ingot production was concentrated in the second half of the year. There is a high probability that domestic aluminum supply will be low and then high in 2024. Currently, high-probability new investment projects are mainly capacity replacement, and the net increase in production capacity is expected to be 380,000 tons. Moreover, most of the new production period is in the third quarter. In terms of resuming production, in addition to the 1.15 million tons that were shut down in Yunnan in the fourth quarter, Guizhou and Sichuan are more likely, totaling about 200,000 tons.

On the supply side, the biggest variable is Ludian Aluminum in the southwest region. Excluding the dynamic changes in production reduction and resumption of production in Yunnan, the production of electrolytic aluminum is expected to be 42.55 million tons in 2024, an increase of 2.78% over the previous year.

Overseas production capacity is slowly recovering, and overseas electrolytic aluminum production is also expected to increase by 2% in 2024. According to data from the International Aluminum Association, overseas production of electrolytic aluminum was 23.97 million tons in the first 10 months of 2023, an increase of 2.44% over the previous year. Electrolytic aluminum production capacity slowly recovered in 2023, with a total of about 400,000 tons of new production capacity from Indonesia's Huaqing Aluminum, Russian Aluminum, and Iran's Salco. In terms of resuming production, production capacity of millions of tons, which was cut in Europe in 2022 due to a sharp rise in energy, has basically remained suspended. France's Dunkirk aluminum industry alone resumed production of 100,000 tons to full production. Other resuming production mainly came from Brazil's Alumar, Portland, Australia, and Kitmat, Canada totaling about 300,000 tons.

In 2024, Indonesia's Huaqing Aluminum is expected to have a production capacity of 250,000 tons with strong certainty. Rusal Taishet's commissioning progress is slow, and other new production capacity may not be put into operation until 2025. Alcoa Alumar and Spain's San Ciprian both have clear plans to resume production. Other production capacity is uncertain, and it is likely that European production capacity will not resume.

Demand side: conversion between old and new kinetic energy, overall aluminum demand will increase slightly in 2024

Aluminum for construction, aluminum for transportation, and aluminum for power electronics are the top three domestic aluminum consumers.

Old momentum: Demand for real estate is weak, and there is great uncertainty about aluminum for construction in 2024.

New momentum: Demand for automobiles can be expected, and demand for aluminum for transportation will increase in 2024.

New momentum: Demand for photovoltaics can be expected, and demand for aluminum for power electronics will increase in 2024.

The overall demand for aluminum increased slightly in 2024. The increase in aluminum demand was partly dominated by automobiles and photovoltaics, while there is uncertainty about the increase in aluminum used in real estate, and the conversion between old and new kinetic energy.

Real estate demand is variable or weak in 2024

Demand for aluminum in the real estate sector is mainly concentrated on the completion side. The cumulative completion area in 2023 increased year on year. Domestic demand for aluminum for construction exceeded expectations, but new construction starts and construction area declined year on year in 2023. Due to large variations in the area to be completed in 2024, there is a risk that demand for aluminum used in construction will weaken.

Automobile demand will continue to increase in 2024, growth rate may decline

According to the China Automobile Association's forecast, domestic automobile production and sales are expected to be 31 million units in 2024, up 3% year on year, and production and sales of new energy vehicles may reach 11.5 million units, up 22% year on year. The amount of aluminum used in bicycles for new energy vehicles is far greater than that of traditional cars, and as cars become lighter, the amount of aluminum used in bicycles is increasing year by year. As the total production of automobiles increases and the share of new energy vehicles rises, demand for automotive aluminum will increase in 2024. It is estimated that the increase in aluminum consumption in the automotive sector will drive about 480,000 tons in 2024, which may decline from the 2023 growth rate.

Demand for aluminum used in power electronics is growing steadily

Under the premise that real estate, consumption, and external demand all face uncertainty, infrastructure will remain an important driving force for stabilizing the domestic economic growth rate; demand for power equipment, infrastructure construction, and cable exports such as UHV and NEV power grid upgrades, and variable voltage relays is relatively active. Grid investment is forecast to maintain a certain level of positive growth in 2024. At present, there are relatively sufficient orders from the State Grid, and orders from some cable companies have been scheduled to be produced until June 2024. Furthermore, 2023-2024 is an UHV implementation period. Demand in the power sector is expected to continue to grow rapidly in 2024. The growth rate is expected to be around 10%, driving an increase in aluminum consumption of about 200,000 to 300,000 tons.

At the same time, the proportion of aluminum substituted for copper in the power sector is gradually increasing. In particular, aluminum for wires in the photovoltaic and automobile industries is gradually maturing, and when the ratio of copper to aluminum is greater than 3, it is easy to trigger replacement. According to the Commodity Market Analysis System, the average price ratio of copper to aluminum from the beginning of 2023 to date: 68340/18766 = 3.64; there is a high probability that copper prices will remain high in 2024 due to supply and demand gaps. In 2024, the copper-aluminum ratio may continue to support the proportion of aluminum instead of copper in the power sector gradually increasing.

In terms of imports and exports: One million tons of aluminum will be imported or maintained in 2024

According to customs data, in the first 10 months of 2023, China imported 1.17 million tons of raw aluminum, accumulated exports of 110,000 tons, and net imports of 1.06 million tons, an increase of 347% over the previous year. One million tons of aluminum were imported or maintained in 2024 for the following reasons:

1. Domestic aluminum prices are high, and price differences between internal and external markets may cause the import window to open. Although since the European and American interest rate hike cycle began in 2022, as overseas aluminum demand gradually weakened, overseas aluminum ingots also went from being scarce and in tight balance to surplus. Overseas countries will gradually enter a cycle of interest rate cuts in 2024, and demand is expected to recover. However, Russian aluminum accounts for more than 80% of the aluminum imported from China. When domestic profit pricing failed, potential overseas supply was sufficient.

2. There is not much new domestic production capacity in 2024, which is not enough to offset the increase in new momentum in demand. There is still a demand gap.

Cost aspect: Aluminum costs may rise slightly in 2024

Smelting 1 ton of electrolytic aluminum consumes approximately: 1.93 tons of alumina, 0.50 tons of pre-baked anode, 13,500 kw.h DC, 20 kg of aluminum fluoride, and 10 kg of cryolite; aluminum oxide, electricity, and pre-baked anodes account for about 7-80% of the main costs.

Anode prices fell from a high level in 2023, with large declines. Prices of thermal coal and alumina fluctuated in a relatively balanced manner, while aluminum costs may rise slightly in 2024.

In terms of alumina, ore disturbances in the Guinea region at the beginning of the year may cause alumina prices to move upward in 2024.

In terms of electricity costs, the “Notice on Establishing a Coal-Electricity Capacity Electricity Pricing Mechanism” decided to implement a coal-to-electricity pricing mechanism from January 1, 2024, which means that electrolytic aluminum plants using thermal power will have additional fixed electricity costs. However, due to uncertain coal prices, electricity costs for self-owned coal-fired power plants may loosen.

Supply and demand will dominate the 2024 aluminum price trend. On the supply side, first tightened and then loosened; on the demand side, strong and then weak; due to a mismatch between supply and demand, the market was strong in the first half of the year, compounded by rising costs, and macroeconomic benefits supported the upward movement of aluminum prices. Overall, aluminum prices rose and then fell in 2024. Prices were strong in the first half of the year and declined slightly in the second half of the year. The price range was 18,000 to 20,500 yuan/ton.