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The electrolytic aluminum market is expected to enter a comprehensive resumption of production stage in late May
Starting from March, despite being in a seasonal accumulation phase, aluminum prices have continued to rise unilaterally. In mid April, the main contract for Shanghai aluminum briefly climbed to 21345 yuan/ton, setting a new high since 2023, with an increase of about 13% compared to early March. Recently, aluminum prices have fallen to the first line of 20700 yuan/ton, and holdings have also decreased. Is there still room for upward growth in the future market? How should investors operate?
Expected increase in supply compared to 2023
Yunnan will enter the stage of comprehensive resumption of production in late May
In mid March, the external power transmission in Yunnan decreased, and with better supplementation of wind power, optoelectronics, and other power sources, there was an surplus of electricity in the province. The local government and relevant departments encouraged industrial electricity consumption and planned to release 800000 kilowatts of load electricity for the resumption of production of electrolytic aluminum enterprises, equivalent to an annual production capacity of 520000 tons of electrolytic aluminum. Due to the relatively high price of electrolytic aluminum, enterprises are highly motivated to resume production. According to relevant research feedback, in the week the news was announced, some companies started to resume production. However, the drought in the southwestern region intensified afterwards, leading to a slowdown in the resumption of production progress, and some projects only resumed production at the end of April.
According to the seasonal characteristics and power supply and demand trends in Yunnan, the electrolytic aluminum market is expected to enter a comprehensive resumption of production stage in late May. It is expected that the domestic electrolytic aluminum operating capacity will exceed 43 million tons by the end of the second quarter.
There are two situations when extending the timeline to the dry season of the fourth quarter:
Scenario 1: During the dry season in the fourth quarter, production has decreased again. The impact of this production capacity on the annual operating capacity is basically the same as in 2023, and the operating capacity of Yunnan electrolytic aluminum in 2024 will be 900000 tons higher than in 2023.
Scenario 2: Unexpectedly, there will be no reduction in production during the dry season in the fourth quarter. This will inevitably increase supply side pressure, and the operating capacity of Yunnan electrolytic aluminum in 2024 will be 1.2 million tons higher than in 2023.
In addition, the current domestic production capacity to be resumed is mainly distributed in Liaoning, Yunnan, Guizhou, Sichuan and other regions, with a total annual production capacity of 1.29 million tons, but most of them do not have the conditions for rapid resumption of production.
The current electrolytic aluminum industry is profitable, with many enterprises maintaining stable production and no willingness to actively reduce production in the short term.
The expected new production capacity of domestic electrolytic aluminum in 2024 is 1.31 million tons, concentrated in Inner Mongolia and Qinghai, but most of it belongs to capacity replacement, with a net increase of only 380000 tons.
Overall, the domestic electrolytic aluminum production will increase to 42.3 million to 42.6 million tons in 2024, with a year-on-year growth rate of 1.9%, slightly lower than in 2023.
China has signed a long-term purchase order for Russian aluminum
According to data from the General Administration of Customs of China, in the first quarter of 2024, China imported a total of 721000 tons of raw aluminum, a year-on-year increase of 225%. In the first quarter, the aluminum market showed a pattern of internal strength and external weakness. According to real-time data calculations, the domestic raw aluminum import window was in an open state for a long time, with 16 trading days in January alone, and the highest spot import profit exceeded 500 yuan/ton.
On April 12th, the US and UK announced new trading restrictions on Russian aluminum, copper, and nickel, prohibiting LME and CME from accepting newly produced metals from Russia. On April 15th, Lun Aluminum rose significantly by 9.38% to $2928 per ton, marking the largest increase since 1987. The pattern of internal strength and external weakness has reversed, causing domestic imports to suffer losses and weakening import enthusiasm.
However, at the end of 2023, China signed long-term orders for purchasing over 100000 tons of Russian aluminum per month, which are not affected by the import window. It is expected that Russian aluminum will continue to be the main force in China's primary aluminum imports in the future. In addition, Russian aluminum that cannot be registered in the LME market in the future is likely to flow into China. The total import volume of domestic aluminum ingots in 2024 may exceed that of 2023.
Strong resilience in the field of new energy
The focus of attention on real estate has shifted to stock renovation
The real estate sector is a crucial aspect of aluminum terminal demand that cannot be ignored. Data shows that in the first quarter of 2024, the construction area of houses in China was 6.79 billion square meters, a year-on-year decrease of 11.1%; The newly started construction area of the house was 170 million square meters, a year-on-year decrease of 27.9%; The completed area of the house was 150 million square meters, a year-on-year decrease of 20.7%. The effectiveness of real estate optimization and adjustment policies needs to be further demonstrated.
The use of aluminum in the real estate industry is mainly concentrated in the completion stage of houses, involving new building doors and windows, aluminum formwork, curtain wall decoration, etc. In the past, benefiting from the "guaranteed delivery of buildings", the completion data was outstanding, supporting the demand for aluminum in the real estate industry. However, in 2024, the focus of aluminum demand shifted from "guaranteed delivery buildings" to a series of existing renovations such as urban villages.
By sorting out policies, it can be seen that in the future, the transformation of urban villages, old residential areas, and urban renewal will follow the transformation sequence from "oldest" to "second oldest", from residential buildings to public and industrial buildings, and then to urban construction in the entire field. The demand for urban stock transformation is expected to accelerate, and transformation projects will become a key focus of infrastructure investment. The stock renovation can still drive the demand for aluminum in construction.
Rare decrease in newly added photovoltaic installed capacity in March
The frames in photovoltaic modules and the brackets in distributed photovoltaic power plants need to be made of aluminum. In 2023, the installed capacity of photovoltaic power generation in China maintained a high-speed growth trend, with a year-on-year growth rate exceeding 150%. In the first quarter of 2024, the installed capacity of photovoltaics was 45.74GW, a year-on-year increase of 36%. However, in March, the newly added capacity was only 9.02GW, marking the first decline of 32%. In 2024, the decline in industry profits will lead to a decrease in new installed capacity in the second half of the year, and the annual growth rate of new installed capacity is expected to be lower than in 2023. In an optimistic situation, the newly added photovoltaic installed capacity of 280GW in 2024 can drive the demand for 1.6632 million tons of raw aluminum, with an increase of 374900 tons of raw aluminum demand, which is lower than the 777100 tons in 2023.
New energy vehicles entering the market-oriented driving stage
Since the beginning of the year, new energy vehicles have significantly improved in terms of user experience, practicality, and energy replenishment efficiency. On the one hand, new energy vehicle companies represented by Xiaopeng and Huawei are actively promoting NOA solutions for cities without maps; On the other hand, the release of 800V high-voltage fast charging models across the country is intensive. By equipped with 4C+batteries, the 30% -80% SOC charging time is expected to be compressed within 10 minutes.
Despite the comprehensive decline in subsidy policies, benefiting from the improved performance of new energy vehicles and low premium strategies, the continuous release of new products on the supply side is expected to accelerate the replacement of fuel vehicles, thereby supporting a further increase in the penetration rate of new energy vehicles. According to data from the China Association of Automobile Manufacturers, it is expected that the sales of new energy vehicles in China will reach 11.5 million units in 2024, a year-on-year increase of 20-25%.
Under the trend of lightweight, the amount of aluminum used in China's single car industry continues to grow. According to the 2019 "China Automotive Industry Aluminum Evaluation Report (2016-2030)" released by the International Aluminum Association, by 2025, the aluminum consumption per vehicle for traditional fuel vehicles, pure electric vehicles, and hybrid vehicles in China will reach 179.8kg, 226.8kg, and 238.3kg, respectively, an increase of 51%, 77%, and 33% compared to 2018. There is still room for aluminum consumption per vehicle in China.
Based on this calculation, the domestic aluminum consumption for new energy vehicles can reach 2.415 million tons in 2024, driving the demand for raw aluminum to 1.2075 million tons.
The earliest resonance replenishment between China and the United States will arrive by the end of the second quarter
Recently, macro factors have dominated the non-ferrous market. Considering the weak financial attributes of aluminum, there is a high probability that it will return to fundamental logic in the future.
The trend of aluminum prices in 2024 still needs to pay attention to the changes in inventory cycles between China and the United States.
The current inventory cycle in China began in March 2023, when industrial enterprises saw a year-on-year decline in finished product inventory, but there were signs of a bottoming out in the cumulative main revenue compared to the same period last year. In March 2024, the profits of industrial enterprises decreased by 3.5% year-on-year, a decrease of 13.7 percentage points compared to the growth rate from January to February, indicating that the time for actively replenishing inventory has not yet arrived. The initiation of the proactive replenishment cycle requires demand growth to drive profit recovery for enterprises, and increased market demand to promote cooperation between production and replenishment. Simply relying on low inventory levels cannot determine the entry into the replenishment cycle. Based on the inventory structure, the latest data shows that 45.7% of inventory in the industrial sector comes from the midstream of the manufacturing industry, and 31.3% of inventory comes from the upstream of the manufacturing industry, totaling 76.9%. Considering the profit margin, in the first quarter of 2024, the profit margins of the upstream and midstream of the manufacturing industry were still low, limiting their subsequent replenishment efforts.
On the US side, it officially entered the passive destocking phase in June 2023. Although the year-on-year sales figures have rebounded for several consecutive months, the year-on-year inventory total has maintained a downward trend. However, in February 2024, the total sales increased by 0.96% year-on-year, and the total inventory also increased by 1.03% year-on-year. It is hard to say that the turning point has arrived. According to historical statistics, the average time PPI bottoms out in each inventory cycle is 5-6 months ahead of the inventory low point. The temporary low point of 0.40% in the US PPI appeared in May 2023 and is still fluctuating at a low level. The trend signal is unclear and requires time to confirm.
Based on the above analysis and mainstream market views, it is expected that the manufacturing industry in China and the United States will enter a resonance phase of active replenishment by the end of the second quarter, which will effectively boost demand for non-ferrous metals (including aluminum).
Expected increase in supply compared to 2023
Yunnan will enter the stage of comprehensive resumption of production in late May
In mid March, the external power transmission in Yunnan decreased, and with better supplementation of wind power, optoelectronics, and other power sources, there was an surplus of electricity in the province. The local government and relevant departments encouraged industrial electricity consumption and planned to release 800000 kilowatts of load electricity for the resumption of production of electrolytic aluminum enterprises, equivalent to an annual production capacity of 520000 tons of electrolytic aluminum. Due to the relatively high price of electrolytic aluminum, enterprises are highly motivated to resume production. According to relevant research feedback, in the week the news was announced, some companies started to resume production. However, the drought in the southwestern region intensified afterwards, leading to a slowdown in the resumption of production progress, and some projects only resumed production at the end of April.
According to the seasonal characteristics and power supply and demand trends in Yunnan, the electrolytic aluminum market is expected to enter a comprehensive resumption of production stage in late May. It is expected that the domestic electrolytic aluminum operating capacity will exceed 43 million tons by the end of the second quarter.
There are two situations when extending the timeline to the dry season of the fourth quarter:
Scenario 1: During the dry season in the fourth quarter, production has decreased again. The impact of this production capacity on the annual operating capacity is basically the same as in 2023, and the operating capacity of Yunnan electrolytic aluminum in 2024 will be 900000 tons higher than in 2023.
Scenario 2: Unexpectedly, there will be no reduction in production during the dry season in the fourth quarter. This will inevitably increase supply side pressure, and the operating capacity of Yunnan electrolytic aluminum in 2024 will be 1.2 million tons higher than in 2023.
In addition, the current domestic production capacity to be resumed is mainly distributed in Liaoning, Yunnan, Guizhou, Sichuan and other regions, with a total annual production capacity of 1.29 million tons, but most of them do not have the conditions for rapid resumption of production.
The current electrolytic aluminum industry is profitable, with many enterprises maintaining stable production and no willingness to actively reduce production in the short term.
The expected new production capacity of domestic electrolytic aluminum in 2024 is 1.31 million tons, concentrated in Inner Mongolia and Qinghai, but most of it belongs to capacity replacement, with a net increase of only 380000 tons.
Overall, the domestic electrolytic aluminum production will increase to 42.3 million to 42.6 million tons in 2024, with a year-on-year growth rate of 1.9%, slightly lower than in 2023.
China has signed a long-term purchase order for Russian aluminum
According to data from the General Administration of Customs of China, in the first quarter of 2024, China imported a total of 721000 tons of raw aluminum, a year-on-year increase of 225%. In the first quarter, the aluminum market showed a pattern of internal strength and external weakness. According to real-time data calculations, the domestic raw aluminum import window was in an open state for a long time, with 16 trading days in January alone, and the highest spot import profit exceeded 500 yuan/ton.
On April 12th, the US and UK announced new trading restrictions on Russian aluminum, copper, and nickel, prohibiting LME and CME from accepting newly produced metals from Russia. On April 15th, Lun Aluminum rose significantly by 9.38% to $2928 per ton, marking the largest increase since 1987. The pattern of internal strength and external weakness has reversed, causing domestic imports to suffer losses and weakening import enthusiasm.
However, at the end of 2023, China signed long-term orders for purchasing over 100000 tons of Russian aluminum per month, which are not affected by the import window. It is expected that Russian aluminum will continue to be the main force in China's primary aluminum imports in the future. In addition, Russian aluminum that cannot be registered in the LME market in the future is likely to flow into China. The total import volume of domestic aluminum ingots in 2024 may exceed that of 2023.
Strong resilience in the field of new energy
The focus of attention on real estate has shifted to stock renovation
The real estate sector is a crucial aspect of aluminum terminal demand that cannot be ignored. Data shows that in the first quarter of 2024, the construction area of houses in China was 6.79 billion square meters, a year-on-year decrease of 11.1%; The newly started construction area of the house was 170 million square meters, a year-on-year decrease of 27.9%; The completed area of the house was 150 million square meters, a year-on-year decrease of 20.7%. The effectiveness of real estate optimization and adjustment policies needs to be further demonstrated.
The use of aluminum in the real estate industry is mainly concentrated in the completion stage of houses, involving new building doors and windows, aluminum formwork, curtain wall decoration, etc. In the past, benefiting from the "guaranteed delivery of buildings", the completion data was outstanding, supporting the demand for aluminum in the real estate industry. However, in 2024, the focus of aluminum demand shifted from "guaranteed delivery buildings" to a series of existing renovations such as urban villages.
By sorting out policies, it can be seen that in the future, the transformation of urban villages, old residential areas, and urban renewal will follow the transformation sequence from "oldest" to "second oldest", from residential buildings to public and industrial buildings, and then to urban construction in the entire field. The demand for urban stock transformation is expected to accelerate, and transformation projects will become a key focus of infrastructure investment. The stock renovation can still drive the demand for aluminum in construction.
Rare decrease in newly added photovoltaic installed capacity in March
The frames in photovoltaic modules and the brackets in distributed photovoltaic power plants need to be made of aluminum. In 2023, the installed capacity of photovoltaic power generation in China maintained a high-speed growth trend, with a year-on-year growth rate exceeding 150%. In the first quarter of 2024, the installed capacity of photovoltaics was 45.74GW, a year-on-year increase of 36%. However, in March, the newly added capacity was only 9.02GW, marking the first decline of 32%. In 2024, the decline in industry profits will lead to a decrease in new installed capacity in the second half of the year, and the annual growth rate of new installed capacity is expected to be lower than in 2023. In an optimistic situation, the newly added photovoltaic installed capacity of 280GW in 2024 can drive the demand for 1.6632 million tons of raw aluminum, with an increase of 374900 tons of raw aluminum demand, which is lower than the 777100 tons in 2023.
New energy vehicles entering the market-oriented driving stage
Since the beginning of the year, new energy vehicles have significantly improved in terms of user experience, practicality, and energy replenishment efficiency. On the one hand, new energy vehicle companies represented by Xiaopeng and Huawei are actively promoting NOA solutions for cities without maps; On the other hand, the release of 800V high-voltage fast charging models across the country is intensive. By equipped with 4C+batteries, the 30% -80% SOC charging time is expected to be compressed within 10 minutes.
Despite the comprehensive decline in subsidy policies, benefiting from the improved performance of new energy vehicles and low premium strategies, the continuous release of new products on the supply side is expected to accelerate the replacement of fuel vehicles, thereby supporting a further increase in the penetration rate of new energy vehicles. According to data from the China Association of Automobile Manufacturers, it is expected that the sales of new energy vehicles in China will reach 11.5 million units in 2024, a year-on-year increase of 20-25%.
Under the trend of lightweight, the amount of aluminum used in China's single car industry continues to grow. According to the 2019 "China Automotive Industry Aluminum Evaluation Report (2016-2030)" released by the International Aluminum Association, by 2025, the aluminum consumption per vehicle for traditional fuel vehicles, pure electric vehicles, and hybrid vehicles in China will reach 179.8kg, 226.8kg, and 238.3kg, respectively, an increase of 51%, 77%, and 33% compared to 2018. There is still room for aluminum consumption per vehicle in China.
Based on this calculation, the domestic aluminum consumption for new energy vehicles can reach 2.415 million tons in 2024, driving the demand for raw aluminum to 1.2075 million tons.
The earliest resonance replenishment between China and the United States will arrive by the end of the second quarter
Recently, macro factors have dominated the non-ferrous market. Considering the weak financial attributes of aluminum, there is a high probability that it will return to fundamental logic in the future.
The trend of aluminum prices in 2024 still needs to pay attention to the changes in inventory cycles between China and the United States.
The current inventory cycle in China began in March 2023, when industrial enterprises saw a year-on-year decline in finished product inventory, but there were signs of a bottoming out in the cumulative main revenue compared to the same period last year. In March 2024, the profits of industrial enterprises decreased by 3.5% year-on-year, a decrease of 13.7 percentage points compared to the growth rate from January to February, indicating that the time for actively replenishing inventory has not yet arrived. The initiation of the proactive replenishment cycle requires demand growth to drive profit recovery for enterprises, and increased market demand to promote cooperation between production and replenishment. Simply relying on low inventory levels cannot determine the entry into the replenishment cycle. Based on the inventory structure, the latest data shows that 45.7% of inventory in the industrial sector comes from the midstream of the manufacturing industry, and 31.3% of inventory comes from the upstream of the manufacturing industry, totaling 76.9%. Considering the profit margin, in the first quarter of 2024, the profit margins of the upstream and midstream of the manufacturing industry were still low, limiting their subsequent replenishment efforts.
On the US side, it officially entered the passive destocking phase in June 2023. Although the year-on-year sales figures have rebounded for several consecutive months, the year-on-year inventory total has maintained a downward trend. However, in February 2024, the total sales increased by 0.96% year-on-year, and the total inventory also increased by 1.03% year-on-year. It is hard to say that the turning point has arrived. According to historical statistics, the average time PPI bottoms out in each inventory cycle is 5-6 months ahead of the inventory low point. The temporary low point of 0.40% in the US PPI appeared in May 2023 and is still fluctuating at a low level. The trend signal is unclear and requires time to confirm.
Based on the above analysis and mainstream market views, it is expected that the manufacturing industry in China and the United States will enter a resonance phase of active replenishment by the end of the second quarter, which will effectively boost demand for non-ferrous metals (including aluminum).
Overall, on the supply side, the second quarter has entered a period of abundant water, with increased expectations for Yunnan's resumption of production. The Inner Mongolia Huayun Phase III project will also be officially put into operation in mid May. The marginal growth of electrolytic aluminum supply in the future is relatively certain, but the market has not yet fully traded in this regard, and vigilance needs to be maintained. On the demand side, multiple sectors performed better than expected in the first quarter, indicating strong resilience in the photovoltaic and new energy vehicle sectors, which were previously relatively bearish in the market. However, the traditional peak season of "gold, silver, and four" has ended, and the replenishment cycle between China and the United States has not yet arrived, resulting in limited demand growth in the short term. In terms of operation, it is recommended to go long during pullbacks, with support level focused on 19000 yuan/ton.
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