Electrolytic Aluminum: Controlling Supply Quantity Needs Continued Efforts in the Future
In China, the development of electrolytic aluminum, one of the most representative excess capacity, has not been optimistic in recent years. However, recently, several testing institutions have released data indicating that the price of electrolytic aluminum has started to rebound from the bottom, and the core operating area has now crossed the threshold of 11000 yuan/ton.
The electrolytic aluminum industry, whose prices have continued to decline, has finally shown signs of recovery. This data is a happy event for the electrolytic aluminum industry, which has been experiencing overcapacity and low prices for a long time.
It is worth mentioning that since the third quarter of 2015, aluminum prices have accelerated their decline, with alumina falling nearly 30% in November, hitting a 10-year low, while electrolytic aluminum has also fallen to a 20-year low.
The main reason is the combination of supply and demand changes and reduction of production and storage
It doesn't seem like an accident that prices have improved a bit from their lows in nearly 20 years to now. In an interview with reporters, Jiang Tianming, director of nonferrous metal research and development at Dayue Futures, said that the rebound in electrolytic aluminum prices is due to the effect of electrolytic aluminum companies' joint reduction in production and storage. The decline in production capacity has led to a weakening of the expectation of selling by smelters, and later consumption is about to enter the peak season, with a periodic trend of inventory shortages.
"The stock index volatility and high end drove the overall recovery of base metals and the impact of rising oil prices. LME aluminum prices continued to explore. In addition, China has continuously introduced favorable policies for real estate, which means clearing inventory, coupled with monetary easing and water release, which is beneficial for all internal commodity prices. Several policies have piled up to ignite the price of building materials, leading to a sharp rise in Shanghai aluminum prices. In fact, the most important thing is that after the 15th day of the first month, downstream construction sites have been started in succession, and demand has increased." "There has been a significant increase compared to the previous period, coupled with initial results in domestic collection and storage, and there has been a slight shortage of deliveries from various regions. Spot aluminum prices have consistently risen where supply and demand have changed." Jiao Jie, an analyst at Zhuochuang Information, said in an interview.
According to data from Zhuochuang, since 2015, many domestic aluminum companies have been unable to bear the burden of cost and have reduced production, including a reduction of 130000 tons of completed capacity, and some old equipment has been directly dismantled and withdrawn from the market; The scale of operational capacity reduction reached a peak of around 3.65 million tons at the end of October, and some enterprises subsequently resumed production. According to comprehensive annual statistics, the production was reduced by 3.312 million tons.
According to public data, in November 2015, the social inventory of aluminum ingots in China totaled over 1 million tons, but after several months of supply cuts, the inventory has decreased to about 600000 tons.
"The prices of coal and alumina have stabilized and rebounded, while the average electricity price has dropped to 0.25 yuan. There is little room for future costs to decline again. On the contrary, costs are beginning to increase, and the price of alumina in core regions has increased by more than 50 yuan/ton, forming a positive cycle with the price of aluminum." Jiang Tianming said that although the current electrolytic aluminum price has no longer led to a reduction in production, it is not enough to stimulate the active production of new production capacity, and the price needs to approach 12000 yuan/ton before it can be implemented, There will be no significant increase in short-term supply.
The reporter also learned from the interview that, in fact, the rebound in the price of electrolytic aluminum has a certain relationship with destocking. In 2015, the Nonferrous Metals Association reached a consensus at the industry conference that the new production capacity of electrolytic aluminum cannot be put into production within one year. Some insiders believe that this move also directly promoted the rebound in aluminum prices. In other words, as inventory decreases, electrolytic aluminum production is also decreasing in large quantities, which alleviates the uneven supply and demand of electrolytic aluminum.
The reporter also learned that on January 12, 2016, six enterprises, including China Aluminum Corporation, China National Power Investment Corporation, Weiqiao Aluminum Power Corporation, Yunnan Aluminum Corporation, Jiuquan Iron and Steel Corporation, and Jinjiang Corporation, had agreed to establish a joint venture to undertake the task of commercial storage of electrolytic aluminum, and had signed a capital contribution agreement. The scale of this commercial storage was 1 million tons.
From the above analysis by industry insiders, it can be seen that the rebound in the price of electrolytic aluminum at this time is mainly due to the joint reduction of production and storage. "At this point, prices have rebounded, but that does not mean that the electrolytic aluminum industry is now going smoothly, and the situation it faces is not optimistic.".
Song Zhichen, a researcher in the energy industry at CIC Consulting, said in an interview with a reporter that at present, the supply and demand structure of the electrolytic aluminum industry has been reversed, with a more balanced supply and demand compared to the original one. The pressure on electrolytic aluminum enterprises has also been alleviated, mainly due to destocking on the one hand; On the other hand, reducing production has led to a significant digestion of electrolytic aluminum production. In addition, the current market demand for electrolytic aluminum is relatively stable, and business operations have slightly improved, and the price of electrolytic aluminum has begun to rise.
Jiao Jie introduced to reporters that in 2015, China's upstream and downstream aluminum industry was moving forward in a difficult situation. The word "down" directly reflects the overall state of China's aluminum industry. Since the beginning of 2015, the domestic electrolytic aluminum price has fallen into a stagnant vortex, and the traditional peak season has suffered successive abortions. However, the prominent negative lines indicate that the industry's profit space has been gradually eroded. However, under the weak market, the large-scale production reduction expected by industry insiders is delayed. On the contrary, the expansion of the upstream and downstream aluminum industry has not stopped, and capacity replacement and technological upgrading and transformation have brought about further expansion.
"In 2015, China's electrolytic aluminum industry entered a comprehensive loss, and in 2016, this phenomenon did not substantially improve." Jiao Jie further emphasized.
However, there are also industry insiders who claim that in the context of the lack of significant improvement in the macro economy, the situation of electrolytic aluminum overcapacity will continue to worsen. At the same time, due to the bottoming out rebound in prices caused by a large number of production cuts, it will stimulate some electrolytic aluminum enterprises to resume production, which may further accelerate the overcapacity and a vicious cycle.
Reducing production capacity is still an effective way
In the face of the current situation of electrolytic aluminum, how to improve is also a question that the industry has been constantly pondering. Jiao Jie believes that from the supply side, it can only be achieved by shrinking production capacity and compressing high cost and high pollution production capacity through marketization and administrative measures. In addition, economic benefits can also be improved through mergers and acquisitions. According to the reporter, in order to reduce losses, many electrolytic aluminum enterprises have decisively taken flexible production measures to save themselves, including all or part of cell shutdown, production reduction, early overhaul of the electrolytic cell, delayed resumption of production of the overhauled cell, and early elimination of inefficient production capacity.
Song Zhichen told reporters that to make a breakthrough in the industry, it is necessary to accelerate supply side reform, control product output, defuse inventory, and achieve a balance between supply and demand structure. Only in this way can we prevent oversupply, leading to a sharp drop in product prices, and affecting the operation of enterprises. Therefore, the key factor is to control the supply quantity. On the one hand, enterprises agree to jointly reduce production, and on the other hand, reduce inventory to alleviate the imbalance between supply and demand.
Regarding the future of the electrolytic aluminum industry, Song Zhichen stated that the electrolytic aluminum industry should actively transform, drive industrialization with informatization, promote informatization with industrialization, and take a new path of industrialization.
"The transformation of electrolytic aluminum should focus on the electrolytic aluminum itself, especially the downstream field of electrolytic aluminum, and transform to the intensive processing of electrolytic aluminum according to market demand. On the one hand, it fully consumes the original electrolytic aluminum assets, and on the other hand, it also provides the electrolytic aluminum industry with opportunities for transformation and upgrading." Song Zhichen said.
In addition, some analysts pointed out that reducing production capacity is a systematic project, and only by making efforts from all aspects of the overall industrial chain of electrolytic aluminum can more positive results be achieved, thereby achieving sustainable and healthy development of the industry.