The price of alumina has reached a downward turning point, and the supply and demand for electrolytic aluminum are excellent, allowing for a significant recovery in profits due to the decline in alumina prices. Attention should be given to companies with net buying exposure in alumina.
According to Zhitong Finance APP, china securities co.,ltd. released a research report stating that on December 5th, Dongao alumina was sold at a price of FOB750 USD/ton for 0.05-0.055 million tons. This overseas alumina transaction represents a decline of about 50 USD/ton compared to the previous transaction, indicating that the initial signs of the price turning point for overseas alumina have emerged. With the new 1 million ton projects coming online in shandong and guangxi in December, domestic alumina prices are also expected to reach a turning point. Given the healthy consumption of electrolytic aluminum and the slowdown in supply growth, the fundamentals are excellent, and the downward pressure on aluminum prices due to the decline in alumina prices is limited, resulting in a recovery of profits in the electrolytic aluminum industry due to the drop in alumina prices.
Main viewpoints of Zhongxin Jiandao are as follows:
Industrial metals: The prices of industrial metals are determined by both their 'financial attributes' and 'commodity attributes'.
This week, the prices of LME copper, aluminum, lead, zinc, and tin changed by 0.9%, 0.3%, -0.7%, -1.2%, and 0.1%, respectively. From a financial perspective, on November 7th, local time, the Federal Reserve announced a reduction in the federal funds rate by 25bp to 4.5%-4.75%, marking the start of a rate-cutting cycle. From a commodity perspective, global copper and aluminum inventories are at relatively low levels, and the recovery of china's economy is expected, coupled with the boost from the nengyuanhangye sector, leading to significantly improved expectations for copper and aluminum demand.
The turning point for alumina prices has emerged preliminarily, and the repair of profits in electrolytic aluminum is imminent.
(1) The turning point for overseas alumina prices has preliminarily emerged.
According to a survey by Mysteel, on December 5, 2024, Dong'ao's alumina was traded at FOB $750/ton for 0.05-0.055 million tons, scheduled for shipment from the end of December to January next year. This overseas alumina transaction decreased by about $50/ton compared to the previous one. On November 22, S&P Global announced that Rio Tinto lifted its restrictions on alumina exports from its Gladstone refinery in Australia. Following the limitation of gas supply in May, Rio Tinto declared force majeure on third-party contracts, causing a disruption of 1 million tons of capacity. India’s Vedanta announced on December 7 that its Lanjigarh alumina plant in Odisha has started operations with an expanded capacity of 1.5 million tons; the plant's previous alumina capacity was 2 million tons, which has now been increased to 3.5 million tons. On the overseas demand side, Russian Aluminum reduced its production of electrolyte aluminum by 0.25 million tons, and the turning point for overseas alumina prices has initially emerged.
Domestically, in December, Shandong invested in 1 million tons of new alumina, and by the end of the year, Guangxi will have an additional 1 million tons of new investment, which will lead to a balance in the domestic market. The turning point for domestic alumina prices lags slightly behind international trends, but as new projects are implemented, the turning point is approaching.
(2) Profit recovery in the electrolytic aluminum industry is imminent.
Due to the rapid rise in alumina prices and the effect of eliminating export tax rebates and low risk appetite, profits in the electrolytic aluminum industry have been significantly squeezed. Starting from mid-November, the average profit of electrolytic aluminum nationwide fell below zero and turned into losses. Based on the latest average alumina price of 5750 and aluminum price of 20500, the national average loss in electrolytic aluminum is 380 yuan/ton.
Currently, the electrolytic aluminum market is consuming healthily, with a cumulative output of 39.59 million tons of domestic electrolytic aluminum from January to November, an increase of 3.8% year-on-year. From January to November, net imports of primary aluminum were 1.88 million tons, an increase of 0.65 million tons year-on-year. Considering the changes in (aluminum rods + aluminum ingots) inventory, the apparent demand for primary aluminum in China from January to November was 41.27 million tons, an increase of 2.04 million tons year-on-year, with a growth rate of 5.8%. With alumina prices on a downward trend, the supply and demand situation for electrolytic aluminum is excellent, allowing it to fully benefit from profit recovery brought about by falling alumina prices, with a focus on companies that have a net buying position in alumina.
Risk warning:
1. A significant global economic recession, with a drastic decline in consumer spending. The World Bank's latest "Global Economic Outlook" forecasts a global GDP growth rate of 2.6% for 2024 and 2.7% for 2025. The institution believes that as inflation eases and growth stabilizes, the global economy is heading towardsBut after the bursting of the internet bubble and the Fed's rate cut in 2001, the ROI dropped by more than 10%.On the road ahead, risks still exist. Economic data from the usa and europe have shown a downward trend, and if a deep recession occurs, the impact on the consumption of nonferrous metals will be enormous.
2. Us inflation is out of control, the federal reserve's tightening of monetary policy is exceeding expectations, and a strong dollar is suppressing equity asset prices. The usa cannot effectively control inflation and continues to raise interest rates. The federal reserve has implemented significant consecutive interest rate hikes, but services, especially rents and wages, appear sticky, limiting the decline in inflation. If the federal reserve maintains high-intensity interest rate hikes, it will be unfavorable for nonferrous metals priced in dollars.
3. Domestic consumption growth in the new energy sector is below expectations, and the real estate sector continues to experience low consumer activity. Despite the varying degrees of policy relaxations for real estate sales, residents' willingness to purchase remains insufficient, and the resolution progress of debt risks for real estate companies is not smooth. If sales do not improve continuously, the completion of real estate projects in the future may face acceleration risks, which will negatively impact the consumption of some nonferrous metals in china.
