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Policy Drives Shanghai Aluminum Structural Adjustment
For some time, LME aluminum upside down has been the focus of market attention. Recently, LME spot aluminum premiums have fallen rapidly, while the Shanghai aluminum market has seen a near-stronger and weaker pattern. On Tuesday, Shanghai Aluminum began to show a precipitous state for the main 0501 contract. On Thursday, the 0411 contract raised the water for the 0501 contract to RMB 170/t. The formation of this kind of situation on the one hand because the domestic spot market is gradually moving towards balance, on the other hand, the forward price is suppressed by the uncertainty factor that mainly takes the policy. The market has been gradually balanced through the large fluctuations in aluminum prices in the previous period. At present, the supply and demand sides of the domestic aluminum spot market have greatly increased their recognition of the relatively low prices in the cost zone. Manufacturers and traders are no longer reluctant to sell as they did during the price increase period. And shillings, consumers have also begun to buy gradually in the stabilization process of aluminum prices. Currently, the supply and demand in the spot market are basically in balance, and it is reported that the spot inventory in the South China Sea remains at the level of 3-4 million tons. On the other hand, the spot alumina price continued to climb. Chinalco increased the spot price of alumina to a higher annual price of RMB 4330/ton on October 27 (the second price increase in October). The long-term selling price is still RMB 3,047. / Tons, aluminum production costs using spot alumina will rise by RMB 400/t, which will also provide some support for aluminum prices. Exports: Expansion before contraction In the remaining two months of this year, the pressure on the relative surplus of domestic supply will continue to be sustained. The export volume of primary aluminum has increased significantly since August, reaching 148,000 tons in September and a net export of 94,600 tons, which is a relatively high level this year. In the past few months, the spot price of LME was compared with the export volume of primary aluminum. After the export conditions were formed, the export volume after two months in general increased significantly. Although the ratio of Shanghai and London to the two cities rose to a relatively high level in early September, but most of the time is still at a level below 9.5, so the fourth quarter, the domestic aluminum exports will reach a relatively high level. In other words, the recent domestic oversupply has moderated, and will maintain a relatively balanced situation for some time in the future, but the market is still far from being tight. Another important reason for the relatively strong performance of recent months' contracts is that the market's expectation on the long-term domestic aluminum price in 2005 was restrained, mainly due to policy factors, including already implemented and possibly announced. Policy restrictions on long-term expectations The Ministry of Commerce and the General Administration of Customs recently announced the “Circular on Implementing the Central Macro-Control Policy to Control the Aluminium Oxide Processing Tradeâ€. The difference from the policy implemented since 2001 is that it has further increased the processing trade in alumina. Corporate standards and requirements. In terms of policies, the electrolytic aluminum enterprises that have annual production capacity of less than 100,000 tons and still retain self-baking tank equipment, use equipment less than 160 KA pre-baking tanks, and illegally establish new projects (the original limit is 50,000 tons or less per year) are undergoing oxidation Aluminum processing trade activity. In terms of policy implementation, companies are not accepting their new alumina processing trade business applications (that is, must be exported) before the number of alumina processing trade contract filings is fully completed and re-exported; Delayed. This measure may affect the primary production of the domestic primary aluminum market in the following aspects: (1) Reduce primary aluminum production. By restricting old technologies such as self-baking tanks, pre-baked tanks below 160 KA, and unapproved production capacity, the government has indirectly suppressed the excessive increase in electrolytic aluminum production capacity. Perhaps this is the original intention of the policy. (2) Reduce the export volume of primary aluminum. The production of primary aluminium in the form of processing trade can be approximated to the export volume of primary aluminium. In the past few years, the volume of imported raw materials has accounted for nearly 90% of the total exports of primary aluminum. Therefore, while controlling the processing trade, the export volume of primary aluminum will shrink in the future. (3) Increase domestic primary aluminum supply pressure. On the other hand, in addition to production cuts, production capacity that cannot continue to trade can be produced through domestic sales channels, and supply pressure on the domestic market is naturally increasing. However, other policies on alumina imports and aluminum export trade are still in the making, mainly on eliminating export tax rebates and imposing export taxes. With the move of time, these policies have become more and more important to the market and become one of the major sources of pressure on forward prices. Combining the production and consumption status of domestic primary aluminum, it is expected that the domestic aluminum market will continue to improve in the near future, and Shanghai Aluminum’s near-strong and weaker situation will maintain or even increase. However, it should be noted that the still abundant inventory may prompt manufacturers and traders to sell, limiting the expansion of the premium for the contract in recent months.