Overcapacity Crisis Wanes and Domestic Aluminum Market Upturns

From recent domestic aluminum market quotations, the crisis of overcapacity is gradually waning, and related domestic aluminum industries can breath for a while.

The high-speed growth of electrolytic aluminum production capacity has been over, and the supply side pressure is also becoming smaller. At the same time, rail transportation and automotive lightweighting bring new demand for aluminum; Glencore events have come to an end; The current aluminum prices are close to the average cash cost, which has strong support; Inventories are low, and there is an inventory forecast; On the policy, the federal reserve delay to raise interest rates, and the aluminum prices are expected to pick up.

Bauxite: Our country will face a shortage of bauxite step by step. Most of our bauxite are poor grade and have higher external dependency (over 50%). Since 2014, we have expanded the import channels in our country after Indonesia ban ore, but if the imports increase is limited in 2016, it may form supply gap in 2016, and the prices will be expected to rise at that time.

Alumina: The supply and demand are just balanced, and the downward space is limited. In the first half of 2015, alumina has small amount of shortages in our country, and at the same time, the alumina capacity growth is not as good as electrolytic aluminum, and the kind of shortages will continue. Alumina prices are still subject to aluminum prices, but flexible production reduction of alumina will increase with the prices decreasing.

Electrolytic aluminum: Overcapacity has gradually eased, and the support in the cost is obvious. In 2014, according to data, we can learned that there are 300000 tons of China's electrolytic aluminum that are surplus and account for only 1%, lower than we are expected; In 2014, there is a shortage of global aluminum of 850000 tons. From the point of the price, the current price has been close to the average cash cost line (11532 RMB/ton). The cost will become an important support for aluminum prices that the time and space which continue to run under cash cost line are very limited.

In 2014, the growth of domestic capacity slowed, and the time of supply high-speed growth was over, and the supply side pressure was also become small; Domestic railway infrastructure investment brings the demand for aluminum, which makes excess capacity gradually digested; The current aluminum prices have already been around average cash cost line. If it continues to fall, it  will lead to further production reduction. Inventories are low, and there is an inventory forecast; On the policy, the federal reserve delay to raise interest rates, and the aluminum prices are expected to pick up.