Aluminum prices fall
Aluminum prices remained strong in early November, showing a strong performance. Recently, aluminum prices have fallen significantly. According to the Commodity Market Analysis System of Shengyi Society, as of November 18, 2024, the average price of aluminum ingots in the East China market in China was 20526.67 yuan/ton, an increase of 5.49% from the market average price of 21720 yuan/ton on November 8.
The early rise in aluminum prices was mainly due to the upward shift of the cost center, which drove the rise of the industrial chain market. In particular, the price of raw material alumina has risen significantly, and the near end fundamentals are expected to be good, resulting in strong prices and causing aluminum prices to skyrocket. At present, the main reason for the decline in aluminum prices is due to fundamental considerations of supply and demand. After rising, prices have begun to make slight corrections.
The basic logic behind the short-term decline in domestic aluminum prices is as follows:
1. There is an expectation of weakening export demand
On November 15, 2024, the Ministry of Finance and the State Administration of Taxation issued a notice on adjusting the export tax rebate policy. Starting from December 1, 2024, all export tax rebates for aluminum products will be cancelled, involving 24 tax codes such as aluminum strips, aluminum foils, aluminum tubes, aluminum tube accessories, and some aluminum bar profiles.
The partial 301 tariff policy of the United States came into effect on September 27th. This includes a 100% tariff on Chinese electric vehicles, a 50% tariff on Chinese solar cells, and a 25% tariff on Chinese steel, aluminum, electric vehicle batteries, and key minerals.
The cancellation of export tax rebates for downstream aluminum products in China and the implementation of some 301 tariff policies in the United States. Prior to this, the new US president took office and the expectation of increased tax policies intensified. From a domestic perspective, these policies have all raised the overseas landing costs of exported products. The export demand of the aluminum industry chain is expected to weaken.
From the divergent price trends of Shanghai Aluminum and London Aluminum in Friday night trading, it also reflects the interpretation of policies by the two markets. Domestically, downstream aluminum exports are expected to weaken, suppressing raw material aluminum ingot prices. Overseas, the opposite is true. The expectation of rising import costs from China and the potential increase in localized demand have led to an upward trend in “bread” expectations and a improvement in local “flour” aluminum ingot prices.
2. Doubts about the sustainability of cost support
Although the short-term cost support for aluminum ingots remains strong, the sustainability of cost support is questionable. The fundamentals of proximal alumina remain favorable, but it has also been reflected in prices, with even alumina prices exceeding expectations and experiencing excessive increases. Currently, the profit window for alumina exports is gradually closing, and due to high prices, there will be more production capacity in the future, and long-term excess pressure will gradually emerge; The risk of alumina price pullback has increased, and the cost support risk of aluminum ingot prices has intensified.
Although the fundamentals of alumina in the near end remain strong, with tight supply in the mining sector and short-term tightness in spot alumina, there is a dynamic expectation of weakening in the far end. From the recent weekly shipment data of Guinea, the bauxite shipment volume in Guinea has shown a significant rebound, and it is expected that the arrival volume in October and November will increase significantly. At present, domestic alumina enterprises mainly using imported minerals still have high operating rates, and the tight supply at the mining end has not brought the expected risk of production reduction. There is also an expected increase in domestic spot supply of alumina. A large alumina plant in Shandong has put into operation a 1 million ton production line this month, with an expected product release date of the end of October or early November. The production situation of new production capacity on the spot side of alumina may be mainly affected by the relocation of 2 million tons of production capacity by Weiqiao Group in the fourth quarter. It is expected that the first batch will be discharged in early November, and the second batch is highly likely to be discharged at the end of November or early December. There is also a production capacity of 2 million tons for Guangxi Huasheng Phase II, with the first batch expected to be put into operation by the end of December and the second batch expected to be put into operation by the end of January 2025.
Overall, in the short term, domestic aluminum prices are under pressure and are expected to decline, with weak fluctuations being the main trend.
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