On November 3, 2007, China Aluminum announced that it will reduce the spot price of alumina from 2,950 yuan/ton to 2,400 yuan/ton, a decrease of 19%. Previously, China Aluminum has lowered the spot price of alumina three times in a row, and the price of alumina has dropped from a high of 5,650 yuan/ton this year to 2,400 yuan/ton now, a decrease of 57.5%, and the price of aluminum oxide has shrunk by more than half. The rapid release of domestic and international alumina production capacity is the main reason for the sharp decline in alumina prices. However, Shanghai Aluminum has not been dragged down by the sharp drop in alumina prices. Instead, it has performed a strong rally with a wavelength of one month. This is what caused the domestic and foreign aluminum market to go against it.
According to common calculations, the current reasonable price ratio between Shanghai aluminum and LME aluminum should be 7.5. If the price is less than 7.5, the export profit, and vice versa. At the end of September, the LME aluminum price was about 2,500 U.S. dollars, while the domestic aluminum price was about 19,000 U.S. dollars. The price ratio between the two cities is about 7.6, which means that the export will suffer losses. Why, then, has the domestic export volume of aluminum products not only not decreased but has continued to increase?
Mainly because of aluminum export tax rebates. It is understood that the phenomenon of blindly exporting metal aluminum has been the main macro-control object of the Chinese government. Electrolytic aluminum is a high-energy-consuming and high-pollution industry. To avoid overheating of investment, China has adopted a variety of methods for macro-control since 2003. Last year, on the issue of exporting large amounts of aluminum metal, it also introduced the elimination of export tax rebates for aluminum ingots and imposed them. Export tariffs and other measures prohibiting alumina from processing trade. However, the regulation only controlled the export of primary aluminum, and did not cancel the export tax rebate policy for aluminum products. The export tax rebate rate was as high as 13%, and the profit of aluminum export was still very good. According to market participants, at present, many small-scale aluminum production enterprises (with an annual output of approximately 30,000 tons or less) have adopted a disguised approach to replace aluminum with aluminum. The difference between aluminum ingots and aluminum profiles is that aluminum ingots have not been processed, and aluminum profiles are processed aluminum ingots. This definition is very ambiguous. Many companies currently do aluminum ingots at very early stages, such as changing the shape or size of aluminum ingots, and then exporting them in the form of aluminum profiles to obtain a 13% export tax rebate. It is this disguised aluminum export that has caused a tight domestic spot situation.
At present, domestic aluminum is still showing signs of decrease. The stock of Shanghai Aluminum Futures is now down to around 30,000 tons, which is a far cry from the stock of nearly 200,000 tons during the peak period. Another data showed that from January to July, China exported 729,950 tons of primary aluminum and aluminum alloys, a year-on-year decrease of 16.5%; however, aluminum exports rose sharply by 62.2% to 63,1920 tons.
In addition, on September 14, the five ministries and commissions of the Ministry of Finance jointly issued a notice that China will adjust the export tax rebate rate for some commodities, starting from September 15. The export tax rebate rate for aluminum products will fall from 13% to 8-11%. The new policy is It will be implemented on September 15, 2006. For export contracts that have been signed before September 14th, as long as the export declaration is made before December 14, the tax refund can be made according to the export rebate rate before adjustment.
The tax rebate adjustment is mainly focused on aluminum materials, and the overall scope is relatively small, only 2-5%, far less pessimistic than the market expected. After the news is announced, most aluminum exporters will export before the end of the year in order to win more preferential tax rebates. Concentrated exports in the short term will inevitably cause tight supply in the domestic aluminum market, leading to a rebound in domestic aluminum spot prices at the end of the year, thus supporting the Shanghai aluminum futures price. The recent sharp rise in Shanghai Aluminum reflects this short-term bullish effect. And its impact on the mid-to-long term market may only be reflected gradually at the beginning of next year.
According to data from the National Bureau of Statistics, in the first half of this year, China produced 5.95 million tons of alumina, an increase of 53.9% year-on-year. At present, there are 29 domestic alumina projects under construction and planned to be built, with a total size of 29.48 million tons/year, of which 25 projects have been started and the construction scale of the first phase is 18.03 million tons/year. In the next 2-3 years, the country's newly built alumina production capacity will exceed 18 million tons/year, plus the existing 10 million tons/year production capacity, China's annual alumina production capacity will soon approach and exceed 30 million tons. According to the relationship between alumina and electrolytic aluminum of 1.95:1, the alumina production capacity will greatly exceed China's demand for electrolytic aluminum.
From a global perspective, alumina is also going from surplus to surplus. According to the forecast of the Ministry of Commerce, in 2006, the consumption of alumina in the world will reach 65.67 million tons, while the production of alumina will be 60.07 million tons. The balance between supply and demand will be basically balanced. With the release of alumina production capacity after 2007, global alumina will enter a surplus cycle.
For the aluminum market, the increase or decrease in the price of alumina, which is an important part of the production cost of aluminum ingots, has a great influence on the price of aluminum ingots. Empirical analysis shows that since 2001, the correlation between alumina prices and aluminum ingot prices has reached 0.82. After four consecutive reductions of aluminum oxide prices, Chinalco's spot price of alumina dropped from 5,650 yuan/ton to 2,400 yuan/ton, a rate of 57.5%, which led to a significant reduction in the production cost of electrolytic aluminum plants, which inevitably led to the subsequent aluminum Ingot production has increased significantly. The domestic alumina production cost is less than 1,700 to 1,800 yuan per ton. The domestic electrolytic aluminum production cost has been reduced by more than 16,000 yuan per ton after the price reduction of alumina.
At present, Shanghai Aluminum’s strong market performance is not related to the reduction of costs. It is related to the export-led market supply caused by the tax rebate adjustment. However, this effect is short-term, and the effect of alumina reduction on supply and demand is affected. Will appear in the medium to long term.
On September 27, the Ministry of Finance of China released a message that from November 1st onwards, China's export tariffs on aluminum ingots have increased from 5% to 15%. The impact on the market is currently a big bad news: China raises its export tariffs on aluminum ingots. Changed the existing price relationship between aluminum prices at home and abroad. Tariff increase, in the long run, does not affect the global balance of supply and demand, but before the market finds a reasonable level of parity, it will form a tight supply of international supply and loose domestic supply in a short period of time. As a result, domestic and international aluminum prices run counter to it. The recent strong external weakness is the embodiment of the short-term effect of the policy.
The People's Bank of China announced on November 3 that it has decided to raise the deposit reserve ratio of deposit-taking financial institutions by 0.5% to 9% from November 15. The readjustment of the reserve ratio is a continuation of the central bank’s continuous macroeconomic control since 2006. The People's Bank of China had previously raised the RMB deposit reserve ratio of deposit-taking financial institutions by 0.5% each on July 5 and August 15 this year. In the future, the central bank will continue to implement a prudent monetary policy, maintain the continuity and stability of the policy, and maintain the steady growth of money and credit. Support the expansion of direct financing and promote the sustainable, coordinated and healthy development of the national economy. The increase in reserve ratio this time has an indirect effect on the metal market. The introduction of the policy aims to curb excessive liquidity and reduce the growth of medium and long-term loans. The slowdown in credit growth has a direct impact on the development of new real estate projects and investment in fixed assets, and to a certain extent the impact on the consumption of copper and aluminum end products.
However, for the aluminum market, the relatively tight supply situation in the near future will continue. At present, Shanghai aluminum stocks are only over 20,000 tons. Underlying stocks form a support for Shanghai Futures Aluminum's recent contract price, making the price of the current month's contract still stand above 20,000 yuan/ton, and it is unlikely that there will be a sharp drop in the short-term.
The continuation of the rising trend of international aluminum prices and the expectation of domestic aluminum output and export growth will become the focus of attention in the domestic market for a period of time. The U.S. economy has slowed down, international funds have retreated from the metal market to the commodity market, and international crude oil has entered a downward track. The Chinese government has adopted a series of macro-control policies to curb economic overheating, all of which have had a bearish effect on the primary aluminum market in the market, but before the end of the year. Affected by the policy buffer period, domestic low inventory, and seasonal peak consumption, aluminum prices are unlikely to drop sharply. In particular, the near-month contract will remain at a high level, even under the influence of the external disk, there is the possibility of an impact of RMB 22,000/ton. At that time, according to a reasonable price of 7.5 aluminum aluminum calculated by Shanghai Aluminum, Lun Aluminum will reach 3,000 yuan/ton. However, in the new year of 2007, the aluminum market is not optimistic. It is expected that the period of February and March of next year will fall back to the 18,000 line and it is expected to become a reality.
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