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2020
-
11
Electrolytic aluminum prices hit a near three-year high, with industry analysts predicting strong fourth-quarter achievements.
With price increases sweeping through multiple sectors such as coal, chemicals, and titanium dioxide
With price increases sweeping through multiple sectors including coal, chemicals, and titanium dioxide, non-ferrous metals have also followed suit. Electrolytic aluminum, in particular, has seen a significant price increase since the second quarter of this year, climbing steadily from a low of around 11,500 yuan/ton. Data from the Shanghai Metals Market shows that the average price of electrolytic aluminum is currently 16,130 yuan/ton, a three-year high. With the continued rise in electrolytic aluminum prices, related companies are experiencing a double harvest in terms of performance and stock prices. A metal new material industry analyst told Cailian Press that this price surge is mainly driven by improving demand and low inventory levels. Currently, the price of alumina, the raw material for electrolytic aluminum, remains low, and the profit margin for electrolytic aluminum is expected to remain at a relatively good level.
Aluminum Price Hits New High
This upward trend in aluminum prices has lasted for nearly half a year. Before the price increase in April this year, impacted by the pandemic, it once fell below the cost price. Market data shows that in the first quarter of this year, the aluminum price plummeted from 14,300 yuan/ton to 11,500 yuan/ton, a drop of nearly 20%; the alumina price fell from 2,610 yuan/ton to 2,350 yuan/ton, a drop of nearly 10%. After April, with the domestic epidemic basically over, downstream demand for aluminum has clearly recovered, and the recovery of waste aluminum has been significantly reduced due to the epidemic, with some primary aluminum replacing waste aluminum, resulting in a significant reduction in electrolytic aluminum inventories. The destocking volume in April reached 440,000 tons, and in May it reached 310,000 tons. With the improvement of domestic demand, the destocking process is expected to continue. According to SMM's statistics on November 26, domestic electrolytic aluminum social inventories have fallen to 596,000 tons.
It was also from April that the price of electrolytic aluminum began to rise. Data from the Shanghai Metals Market shows that on November 26, the average price of electrolytic aluminum was 16,130 yuan/ton, a near three-year high.
A metal new material industry analyst told Cailian Press that, in terms of absolute price, the current price of 16,000 yuan is not the highest; in 2016, the price once exceeded 17,000 yuan per ton.
Jiang Feng, manager of an aluminum processing company in Changzhou, Jiangsu Province, told Cailian Press: "Although the current price of electrolytic aluminum has risen significantly compared to the second quarter, there is still room for price increases because market demand is still very large. Our previous inventory has been digested, but company orders continue to increase, and are currently scheduled until the first quarter of next year."
Low Costs Support High Profits
According to the analyst mentioned above, the cost of electrolytic aluminum is mainly composed of electricity costs and alumina costs, the sum of which accounts for more than 80% of the total cost. With electricity costs continuing to decline, alumina has become a key cost factor for electrolytic aluminum, deeply affecting the profitability of electrolytic aluminum enterprises.
It is understood that after the intensive commissioning of multiple alumina projects in 2018, domestic and overseas alumina supply has continued to increase, and there is still overcapacity. The weak alumina price is likely to continue, which is one of the reasons why the profit performance of electrolytic aluminum has been relatively good. The analyst told Cailian Press that because the current price of alumina is lower than expected, the current profit of electrolytic aluminum is more than 3,000 yuan per ton.
The recovery and improvement of downstream demand, and strong domestic demand, are also important factors supporting profits. Industry analysts told Cailian Press that the downstream demand for electrolytic aluminum has clearly recovered. In areas such as automotive new energy, photovoltaics, and conventional building profiles, the demand for electrolytic aluminum has exceeded expectations, and electrolytic aluminum may maintain a profit margin of over 10% in the long term. Jiang Feng also told Cailian Press: "With the price rising above 16,000 yuan, many companies will maintain a good profit level this year."
Listed Companies' Achievements Will Improve
The analyst continued to tell Cailian Press that since 2017, electrolytic aluminum has benefited from supply-side reforms, ending the previous period of disorderly expansion. The industry conforms to low-carbon emission requirements, meaning it can be applied to a wider range of Applications. Traditional consumption areas such as construction, electronics and electricity, and transportation remain in strong demand. Coupled with the widespread use in automotive new energy, photovoltaics, and conventional building profiles, this has provided support for the rise in aluminum prices.
After seven consecutive months of price increases for electrolytic aluminum, industry companies have seen significant gains. Chalco (601600, SH), after experiencing a decline in revenue and net profit in the first quarter due to the epidemic and the plunge in aluminum prices, has seen its performance rebound. In the first three quarters, it achieved operating revenue of 133.155 billion yuan, down 8.69% year-on-year, and net profit attributable to shareholders of listed companies of 452 million yuan, with a narrowing decline. In the first three quarters of 2020, Yunal (000807, SZ) achieved revenue of approximately 19.893 billion yuan, a year-on-year increase of 10.89%, and net profit of approximately 5.70 billion yuan, a year-on-year increase of 95.19%.
According to a research report by Tianfeng Securities, since the second quarter of 2020, the profitability of electrolytic aluminum has remained high, and the revenue and profit of electrolytic aluminum companies have continued to improve. The global economy has begun to fully recover, and the supply gap is expected to be maintained. It is expected that the high profitability of the electrolytic aluminum industry will continue throughout 2021.
In the view of the analyst mentioned above, based on the current trend, the Price of electrolytic aluminum should be able to remain high, so listed companies should have good Achievements in the fourth quarter, which will completely reverse the adverse effects of the epidemic.
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