Industry dynamics
Industry status
Profit per ton of aluminum fell this week and Chinese inventories rose. This week’s aluminum price closed at 22720 yuan / ton, with a week-on-week ratio of – 0.87%. We calculated that the immediate profit of electrolytic aluminum was + 4687 yuan / ton, with a week-on-week ratio of – 7.02%. The week on week ratio of inventory of China social security library, the previous period exchange and LME was + 9.37%, + 9.76% and – 2.97% respectively.
Supply side: according to the statistics of Shanghai Aladdin Biochemical Technology Co.Ltd(688179) and SMM & IAI, by the end of January, the operating capacity of electrolytic aluminum in China was about 38.38 million tons, and the built capacity was 43.97 million tons. The operating rate of electrolytic aluminum enterprises in China was about 87.3%.
In January, China’s electrolytic aluminum output was 3.204 million tons, a year-on-year decrease of 3.6%. In December 2021, overseas electrolytic aluminum output was 2.437 million tons, a year-on-year increase of + 1.5%.
Demand side: according to SMM, the operating rate of aluminum leading downstream processing enterprises this week was about 66.5%. In January, the operating rate of China’s aluminum profile, aluminum rod line, aluminum sector, strip foil and recycled aluminum alloy enterprises was -5.31ppt, + 3.9ppt, -0.14ppt and -3.03ppt year-on-year, and -5.58ppt, -4.5ppt, + 0.63ppt and -3.45ppt month on month.
Cost side: this week, the market prices of alumina, power coal and prebaked anode were 3316 yuan / ton (mom + 3.24%), 1000 yuan / ton (Mom – 1.01%) and 5210 yuan / ton (mom 0.00%).
Commentary
The production reduction of European aluminum plants supports the aluminum price, and the resumption of production and shutdown in China are carried out simultaneously. First, the rise in electricity prices in Europe forced aluminum plants to continue to reduce production. According to SMM statistics, the operating capacity of electrolytic aluminum in Western Europe is 3.26 million tons / year. At present, the output is reduced by more than 800000 tons / year, accounting for 1.1% of the world. Second, the Baise epidemic triggered a reduction in the production of electrolytic aluminum plants. According to SMM research, the actual shutdown capacity of Baise is 420000 tons / year, accounting for 1.1% of China’s operating capacity. Third, China’s power shortage has eased, and the cumulative resumption of production has reached 1.05 million tons since this year. We believe that the current production reduction of European aluminum plants is the main factor supporting the aluminum price center. Although China has resumed production, considering that it is in the dry season and heating season, the power has not been fully restored, and the supply end of electrolytic aluminum is still in a tight state.
China’s steady growth policy continued to be implemented, and the demand for electrolytic aluminum stabilized and rebounded. The real estate market is expected to pick up marginally. Since the announcement, the total investment in infrastructure projects in all provinces has exceeded 1 trillion yuan, and the total investment in infrastructure projects in all provinces has exceeded 1 trillion yuan; Second, second-hand housing loans in hot cities in Beijing and Shanghai are accelerated, and loose real estate credit is conducive to the recovery of the real estate market 1; Third, the scale of social finance increased by 6.17 trillion yuan in January, a record monthly increase.
The three major items on the cost side collectively fell from the high point, the short-term increase of alumina was limited, and the coal price was stable by the policy, and the rise was relatively mild. Since the end of October 2021, coal, alumina and anode, the three major cost items of electrolytic aluminum, have started to fall in turn. As of February 18, the high level of coal has fallen by 62%, alumina has fallen by 16% and anode has fallen by 5%. We believe that although the output of China’s four major alumina producing areas has been reduced at the same time recently, the price rise is relatively mild due to expectations in advance; Coal continues to be affected by the stable price of the national development and Reform Commission. We expect that it will be difficult to rise sharply in the future, and there is no room for a significant rise in the cost of electrolytic aluminum.
Valuation and recommendations
Electrolytic aluminum sector suggests paying attention to Yunnan Aluminium Co.Ltd(000807) (uncovered), Henan Shenhuo Coal&Power Co.Ltd(000933) (uncovered), Aluminum Corporation Of China Limited(601600) , Tianshan Aluminum Group Co.Ltd(002532) (uncovered) with high benefit of carbon neutralization, cost advantage and capacity increment. For the aluminum processing sector, it is suggested to pay attention to the upstream and downstream integrated aluminum automobile sector leader Shandong Nanshan Aluminium Co.Ltd(600219) with rapid capacity expansion under the high landscape of automobile lightweight.
Risk
The global economic recovery is lower than expected; Electrolytic aluminum production capacity recovered more than expected; The steady growth policy was lower than expected.
