If the EU bans imports of Russian aluminum in the next few months, European and American buyers will compete fiercely for Middle Eastern aluminum, or trigger a “boom” in aluminum prices.
The Zhitong Finance App learned that on March 6, Hong Kong aluminum stocks generally rose. As of the close, China Hongqiao (01378) rose 6.04%, China Aluminum (02600) rose 2.49%, and Xingfa Aluminum (00098) rose 0.32%. According to reports, the European Union has been discussing sanctions to ban aluminum imports from Russia for several months. Sources said that the latest sanctions plan introduced by the EU due to the 2nd anniversary of the outbreak of the Russian-Ukrainian conflict did not include new sanctions against aluminum, but it is expected that the EU will soon propose another new import ban plan. If the EU bans imports of Russian aluminum in the next few months, European and American buyers will compete fiercely for Middle Eastern aluminum, or trigger a “boom” in aluminum prices.
According to the International Aluminum Association, Middle Eastern producers were responsible for supplying about 6.2 million tons to the world last year, accounting for nearly 9% of global supply, of which about 2 million tons were shipped to Europe and the United States. According to TDM data, the EU's imports of Russian aluminum reached 512,122 tons last year, accounting for 8% of total imports. The loss of Russian metals will leave Europe facing a 510,000 ton gap, part of which can be made up by restarting the shutdown capacity. “Middle Eastern suppliers will not be able to quickly completely replace Europe's gap,” said Dmitriceres of American aluminum trader Perennial.
According to information, in April 2018, US sanctions against Russian producer Rusal triggered a crisis, causing aluminum prices on the London Metal Exchange (LME) to rise 35% in just a few days, reaching the highest level in seven years. Tariffs on European aluminum imports rose 45% in the following month, while the US premium increased 20% over the same period.
On the domestic side, from a supply-side perspective, the production capacity of electrolytic aluminum factories across the country remained stable at about 42 million tons/year. There is no accurate information on the resumption of production at Yunnan aluminum factories, and the import window was closed for most of the time in February. Aluminum companies in Yunnan mainly produce hydropower. Currently, hydropower is insufficient to support large-scale resumption of production, and the cost of purchasing thermal power from outside is high. Also, the electrolyzers of some electrolytic aluminum companies are under maintenance, and the probability of large-scale resumption of production in March is low.
From the demand side, every year from March to March is the traditional peak season for the manufacturing industry to rise. Downstream production resumes one after another, the operating rate continues to rise, and demand is expected to pick up. Fiscal and monetary policies gradually strengthened in the first quarter. Infrastructure investment and the commencement or construction of the “three major projects” in the second quarter gave a certain boost to aluminum consumption. The growth rate of photovoltaics and new energy vehicles is likely to slow down due to the development of industry standards, high base, and high car ownership. However, orders from the UHV sector were good this year, which provided some support for aluminum consumption. In 2023, UHV completed tenders for equipment and materials of 40.5 billion yuan and 30.6 billion yuan respectively, an increase of 1072% and 207% over the previous year. Delivery will gradually begin in 2024.
Sun Weidong, a non-ferrous analyst at TSE Futures, believes that the core focus of the March market will be the rate of removal of domestic aluminum ingot inventories. At the same time, due to the large number of aluminum bars accumulated after the holiday this year, the pace of removal of aluminum bar stocks and the performance of aluminum bar processing costs have also received market attention. The removal of aluminum ingots is a probable event. The superposition itself has a low inventory level, which will provide some support for aluminum prices.
Societe Generale Futures said that the domestic production capacity of electrolytic aluminum is close to the upper limit. The additional production capacity in 2024 will be mainly replaced, and the absolute increase is expected to be less than 400,000 tons. Overseas production capacity is still hampered by poor profits, and the resumption of production is slow. Under the low inventory structure, space above aluminum prices opens up. Against the backdrop of tight supply and demand, the low inventory structure is likely to continue, providing room for price increases. Aluminum prices are expected to break through a 23-year high and stand at 22,000 yuan/ton.
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Hongqiao, China (01378): Bank of America Securities expects China's aluminum demand to grow by 2% in 2024 (an average annual increase of 10% in 2024-2025), driven by power grid investment. The growth and weight reduction trend of electric vehicles is still good, which will offset the decline in real estate completion/solar energy demand growth. China's Hongqiao is highly sensitive to aluminum profit margins. For every 1% increase in aluminum prices, net profit after tax is expected to increase by 4.8% in 2024.
China Aluminum (02600): CCB International maintained its “outperforming market” rating and raised its 2023, 2024 and 2025 profit forecasts by 20%, 4% and 20%, to reach 6.7 billion yuan, 8.1 billion yuan and 9.1 billion yuan respectively, according to a research report in November last year. The target price was raised from HK$4.7 to HK$5.1.
Xingfa Aluminum (00098): The company is one of the earliest companies in mainland China to produce aluminum profiles. It has now become a famous large-scale enterprise specializing in the production of construction aluminum profiles and industrial aluminum profiles in China, with an actual annual output of 100,000 tons.