Since the third quarter, Shanghai aluminum prices have undergone fluctuations—initial declines, followed by rebounds, corrections, and then another upward movement. As of September 25, Shanghai aluminum remains in a new rebound phase driven by positive macroeconomic factors. Recent internal and external favorable policies have contributed to the aluminum market’s strength.
Industry Profit Recovery
As aluminum prices recover, the average cost in the electrolytic aluminum industry has stabilized around 20,000 yuan/ton. According to data from the Shanghai Nonferrous Network, as of September 19, the average full production cost of electrolytic aluminum in the third quarter was around 17,747 yuan/ton. Although costs have declined between July and September, they remain higher than the industry’s average costs in the second quarter.
The decline in costs can be attributed, on the one hand, to July through September coinciding with Yunnan’s peak water season, where hydropower costs are at their lowest levels annually. Additionally, coal-fired power prices have decreased due to weak coal prices, further reducing electrolytic aluminum smelting costs. However, alumina prices have remained high at 3,900 yuan/ton, and in the past month, they have surged past 4,000 yuan/ton, limiting further cost reductions. As of October, Yunnan’s hydropower costs are expected to increase gradually, and power costs are forecasted to rise throughout the fourth quarter. Furthermore, with heating needs increasing in northern China, demand for thermal coal may rebound, potentially causing a shift in coal prices. Overall, the upward trend in aluminum prices, supported by favorable macroeconomic conditions and seasonal demand, is likely to continue, providing further profit recovery for the industry.
Since Yunnan’s large-scale resumption of production concluded in July, domestic electrolytic aluminum continues to operate at a high capacity utilization rate. As of the end of August, China’s aluminum capacity utilization rate reached 95.88%. According to data released by the National Bureau of Statistics, China’s primary aluminum output from January to August 2024 totaled 28.91 million tons, a year-on-year increase of 5.1%. In August alone, primary aluminum production was 3.73 million tons, up 2.5%, setting a monthly record for the highest output in over 20 years.
Looking forward, with profit levels secured, thermal power capacity is expected to continue stable operations. However, the most significant uncertainty lies in the operation of Yunnan’s hydropower capacity. Reduced rainfall in Yunnan has affected hydropower supply, potentially leading to capacity shutdowns in the fourth quarter, which could tighten electrolytic aluminum supply. Nonetheless, with rainfall conditions better than in 2023, the scale of production cuts may not be as significant as last year’s 1.15 million tons. The period from mid-October to November will be a critical time to watch.
Seasonal Demand Effect
The third quarter is typically a period of weak demand, but since mid-September, demand has gradually shifted into its seasonal peak. Throughout the third quarter, demand was relatively weak, primarily supported by aluminum usage in the power grid and industrial profiles. According to SMM data, the aluminum processing industry’s PMI for July and August showed a continued recovery, but both months remained below the prosperity threshold. In August, the PMI for aluminum processing was 43.6. SMM data also indicated that as of September 20, the operating rate of leading domestic aluminum processing enterprises reached 63.5%, showing a recovery over seven consecutive weeks, comparable to the same period last year. Seasonal demand continues to materialize, driven by the electric vehicle, photovoltaic, and power grid construction sectors, while demand for construction aluminum remains a drag.
According to the latest customs data, China’s exports of unwrought aluminum and aluminum products reached 594,000 tons in August 2024, an increase of 1.19% month-on-month and 21.2% year-on-year. From January to August, the cumulative export volume was 4.352 million tons, up 15.0% year-on-year. Exports continued to improve.
As the aluminum industry’s liquid aluminum ratio rises with the peak season, SMM data showed that by the end of August, the industry’s liquid aluminum ratio had risen to 73.06%, up 2.3 percentage points from July. Combined with marginal demand improvements, aluminum ingot inventories are being reduced, and downstream demand for aluminum in October is expected to continue to improve. Seasonal inventory reductions in aluminum ingots are still anticipated. However, challenges remain due to ongoing anti-dumping investigations in multiple countries, as well as tariffs imposed on key consumption sectors such as electric vehicles. These factors could impact orders and demand in related sectors, posing potential risks to consumption.
Outlook
From mid-October to November, the supply side will face critical challenges. Seasonal demand is expected to continue in October, and with strong fundamentals, seasonal inventory reductions in aluminum ingots are anticipated. However, as the peak season ends, aluminum prices may face downward pressure due to weak demand. Overall, the short position in the aluminum market has weakened due to positive macroeconomic factors, and with strong fundamentals, aluminum prices are likely to rise in October. However, caution is warranted regarding potential pullbacks following any rallies.
[Source – 上海有色网] 铝价 10月有望冲高 https://news.smm.cn/news/102976376
