Supply-side reform deepening aluminum future demand should not be overly low

Since the beginning of this year, aluminum prices have continued to rise under the stimulation of supply and demand, cost increases, and transportation difficulties. However, based on the judgment of overcapacity and weakening demand, the market is still more pessimistic about aluminum prices. We believe that with the gradual deepening of supply-side reforms, the issue of overcapacity in the aluminum industry chain will gradually change. In the future, the supply and demand relationship in the aluminum market will be better than the market expectation. The price of aluminum is also rising due to rising costs. The bottom of the previous period is difficult to penetrate again.

In recent years, electrolytic aluminum is in excess capacity, and the new production capacity is much larger than the withdrawal of production capacity. According to the data from Baichuan, the net increase in production capacity in 2013, 2014 and 2015 was 409, 447 and 1.79 million tons. The high volume of production capacity and the vicious competition in the industrial structure have led to the continuous decline of aluminum prices, and aluminum companies have also been losing money all the year round.

In the future, with the effective promotion of the supply-side reform, it is expected that the capacity to be put into production will gradually decline. On October 8, Premier Li Keqiang of the State Council presided over the executive meeting of the State Council and stated that the electrolytic aluminum industry with a severe excess production capacity must not add new production capacity in any way. For the necessary electrolytic aluminum reform and expansion projects, it must strictly implement the production capacity, etc. Amount or decrement replacement program. Under the background of new production capacity approvals being blocked, it is expected that new projects that have been approved in the early stages of electrolytic aluminum will be gradually digested in the next two years. In terms of new capacity in 2017, according to Antaike's statistics, the scale of production is about 3 million tons, and the actual national production capacity is expected to reach 44 million tons, and the capacity increase is 5.8%. This growth rate has fallen sharply from previous years.

Due to poor real estate expectations, the market will be more pessimistic about the demand for aluminum next year. Domestic aluminum demand is mainly concentrated in the construction, electronic power, transportation, durable goods and other industries, of which the largest sub-sector is the construction industry. After October, with the irrational rise in real estate prices in first- and second-tier cities, local control efforts have escalated and more than a dozen cities have introduced restrictions on purchase policies. Under the background of changes in real estate policies, the market generally expects real estate sales and construction to gradually decline, thus dragging aluminum demand.

Although the deceleration in real estate demand growth is a high-probability event, due to the lightening revolution and the construction of urban rails, the growth rate of aluminum demand is still guaranteed. From the output data of aluminum materials of the National Bureau of Statistics, the year with the lowest growth rate of aluminum production in the year 2000 to 2000 has been in 2015. At that time, the real estate industry was also very sluggish, but at that time, the annual output growth of aluminum was still as high as 9%. Therefore, in the future, the supply and demand growth in the aluminum market may decline at the same time, but the supply growth rate will decline faster than the demand growth rate. In this way, the aluminum market will still be less than demand.

While aluminum prices fell sharply in 2011, the pattern in the aluminum industry has also undergone profound changes. With the mass production of low-cost enterprises, the original high-cost enterprises have gradually been replaced, and the domestic oligopolistic market for electrolytic aluminum supply has taken shape. From the perspective of this year's market, electrolytic aluminum companies in the oligopoly market have significantly stronger control and support of aluminum prices than the complete competition market in previous years. Since the beginning of this year, in the case of long-term profits for the entire industry, the dominant oligarchs in the market are still in no hurry to increase their production capacity, resulting in a shortage of goods in the market. From the perspective of economics, the motivation for the current decision-making of oligarchs lies mainly in the completion of their strategic deployment. The next step is to maintain their profit maximization under the existing pattern. Therefore, in the current market, high profit margins are obviously more important than increasing production capacity.

Since the beginning of this year, with the successful implementation of the coal industry's output control, coal prices have been rid of the three-year decline, and the bottom of thermal coal prices has indeed formed. With regard to the price of electrolytic aluminum, the overall cost of the electrolytic aluminum industry has risen with the increase in the cost of electricity. Even if there is a temporary surplus in aluminum supply and demand, the rising costs will also force the entire price range of aluminum prices to move upwards. In the short term, due to the increased risk of thermal coal callbacks, the possibility of a fall in aluminum prices is increasing. However, at the bottom of the basic establishment of energy costs, coupled with changes in the pattern of supply and demand, we believe that it is not appropriate to look too hard on aluminum prices. The overall thinking, it is recommended to do more than fall to cost support.