Shanghai aluminum continues to move upward, and the aluminum price may even hit the 20,000 yuan/ton mark.

On April 6, Ge Honglin, President of the China Nonferrous Metals Industry Association, said: "Recently, the relevant state departments have studied the Implementation Plan for Carbon Peaking in the Non-ferrous Metals Industry (hereinafter referred to as the "Plan") and are seeking the opinions of industry associations and enterprises. The "Plan" initially proposed that the non-ferrous metal industry will strive to be the first to achieve carbon peaks by 2025, and strive to achieve a carbon reduction of 40% by 2040, which will be at least 5 years earlier than the national carbon peak time. "Set specific carbon emissions for the industry. The peak target will force companies to strictly control new capacity and adjust the existing capacity layout.


Relevant domestic departments have repeatedly emphasized that they will strictly control the “ceiling” of 45 million tons of electrolytic aluminum production capacity. According to relevant data, as of the beginning of April, the annual operating capacity of electrolytic aluminum nationwide was 39.44 million tons, the effective built-up capacity was 43.59 million tons per year, and the operating rate of electrolytic aluminum enterprises nationwide was 90.5%. At present, there is not much room for new capacity to be put into use, and the operating rate of existing capacity is relatively high, and there is not much room for increase in output. Since the beginning of this year, the market's concerns about oversupply have weakened, and concerns about supply shortages after next year have gradually increased.


Since the Inner Mongolia Autonomous Region Development and Reform Commission issued the "Several Safeguard Measures for Ensuring the Completion of the Energy Consumption Dual Control Targets during the 14th Five-Year Plan Period (Draft for Comment)" in early March, many electrolytic aluminum enterprises in Inner Mongolia have successively reduced production, involving about 300,000 tons of production capacity. As of the end of February, Inner Mongolia had an operating capacity of 5.98 million tons, reducing production capacity by approximately 5%. Similar to Inner Mongolia, my country's Xinjiang region has a fragile ecological environment, and electrolytic aluminum enterprises mainly produce thermal power. At the end of February, the operating capacity of electrolytic aluminum in Xinjiang was 6.18 million tons, surpassing that in Inner Mongolia. On April 13, the market rumored that Xinjiang region would restrict production of some aluminum enterprises, and the upward price of aluminum once touched 18,000 yuan/ton. Although it has been confirmed by many parties that the major aluminum enterprises in Xinjiang have not yet been notified of production cuts, aluminum prices have not fallen. Xinjiang's production reduction policy may be on the way.


In addition to reducing the existing operating capacity, the increasing difficulty in landing new capacity also makes the market worry that the supply will be further tightened in the future.


In early February, the Inner Mongolia Development and Reform Commission and the Ministry of Industry and Information Technology issued a notice to adjust some industries' electricity price policies and electricity market transaction policies. Among them, since February 10, 2021, self-provided power plants will pay policy cross-subsidies based on self-generated and self-consumed electricity consumption. The Mengxi and Mengdong power grids will charge 0.01 yuan per kilowatt hour and 0.02 yuan (tax included), respectively. And cancel the electricity price policy of 3.39 cents per kilowatt-hour for the basic electricity fee of the electrolytic aluminum industry in West Inner Mongolia, and cancel the inverted-step transmission and distribution price policy of the West Inner Mongolia power grid.


Through the adjustment of electricity prices, the production costs of electrolytic aluminum enterprises have continued to increase. According to the original plan, Inner Mongolia will have 1.35 million tons of new production capacity put in from 2021 to 2022. However, the government is currently restricting the expansion of production capacity in Inner Mongolia through administrative and market adjustment measures. It is doubtful whether the new production capacity can be put into production as originally planned. In addition to Inner Mongolia, Guizhou, Shandong and other places have introduced banning electrolytic aluminum and other industries to increase capacity projects in violation of regulations, replacement but not completed capacity or will be shelved.


In the case of limited aluminum supply, consumption has improved seasonally, and aluminum social inventories have accelerated. On April 15, the social inventory data of major consumer places such as Shanghai, Wuxi, Hangzhou, Nanhai, and Gongyi announced that the total amount of weekly destocking was nearly 45,000 tons, and the total inventory is currently at a low level over the same period in recent years.


From a global perspective, LME inventories have also continued to decline since late March. As the European and American manufacturing industries continue to recover, the demand for industrial products picks up. Since April, the European and American aluminum premiums have reached their highest levels since June 2019 and May 2018, respectively. Tighter supply in the spot market also boosted the confidence of the bulls.


Looking ahead to the second quarter, we believe that domestic aluminum demand will continue to improve seasonally. At the same time, with the launch of vaccination and economic stimulus plans, overseas demand will also rebound simultaneously. From the supply side, as China's aluminum industry accelerates the implementation of the carbon peak target and the promotion of the "dual control" policy of energy consumption by local governments, the aluminum market is facing a tight supply situation. China's aluminum production accounts for about 60% of the world's total. China's efforts to curb carbon emissions have affected the nerves of the global market and paved the way for aluminum prices to rise sharply. We expect that in the second quarter, domestic inventory will continue to be destocked, and the supply gap will gradually expand in the future. Aluminum prices will easily rise but never fall. The price center will continue to move upwards. Aluminum prices may even hit the 20,000 yuan/ton mark.