According to the statistics of Shanghai Nonferrous Metal Network, as of April 8, the total inventory of aluminium ingots in eight areas, such as Shanghai, totaled 2.227 million tons, a decrease of 0.4 million tons annually, which has been declining for four consecutive weeks. Industry insiders said that consumer recovery and inventory willingness are strong, while the speed of new supply and restocking is slow, and inventory removal is expected to continue.
Inventory is on the downward trend
Statistics from Shanghai Nonferrous Metal Network show that on April 8, the stock of aluminium ingots in Shanghai was 444,000 tons, in Wuxi was 892,000 tons, in Hangzhou was 157,000 tons, in the South China Sea was 427,000 tons, in Gongyi was 191,000 tons, in Tianjin was 55,000 tons, in Chongqing was 23,000 tons, in Linyi was 38,000 tons, and in eight places the total stock of aluminium ingots was 22,227,000 tons, a decrease of 44,000 tons. This has been a four-week decline in the stock of aluminium ingots.
Aluminum prices continued to rise on April 9 due to the decline in the stock of aluminium ingots. Baichuan information statistics show that on April 9, the price of the Yangtze River rose by 80 yuan/ton compared with the previous trading day, and that of South China Storage rose by 130 yuan/ton compared with the previous trading day. On that day, the spot trade increase and discount level was generally flat or about 10 yuan/ton. But Shandong's water supply is around 50 yuan per ton, and spot transactions are active. Southwest market trading heat is general, buyers wait-and-see is the main; East China shipments more; South China market trading heat is declining, sellers are reluctant to sell. Some manufacturers are waiting for the value-added tax rate to be lowered in May and for the price of aluminium to rise in May.
Xie Honghe, a non-ferrous metals analyst at China-Thailand Securities, believes that there are two main factors leading to the decline of inventory: one is the reduction of in-transit backlog during the Spring Festival; the other is the weakening of seasonal factors and the sustained recovery of downstream consumption. At the same time, aluminum prices are running at a low level, and processing enterprises are willing to replenish their warehouses at low prices. These factors together lead to more outgoing than inputting. With the arrival of the peak consumption season, the downward trend of aluminum social inventory is basically established, and the second quarter will usher in the accelerated inventory phase.
Multi-factor Supporting Aluminum Price
Reproduction progress after heating season is lower than expected. According to the survey of Shanghai non-ferrous metal network, the production capacity of alumina is 3.66 million tons per year during the heating season. Among them, 620,000 tons per year have been clearly identified, but the planned but not clearly defined capacity is 1 million tons per year (more likely), the estimated capacity is 1.62 million tons per year, accounting for 44.3% of the total limited capacity, and the delayed capacity is estimated to be 1.64 million tons per year, accounting for 44.8% of the total limited capacity. At the electrolytic aluminium end, most of the limited production capacity has not yet been clear about the time node for the resumption of production. Generally speaking, under the pressure of price factors, the enthusiasm of enterprises to resume production is not high, especially for electrolytic aluminium.
Recently, the "Specific Governance Scheme for Normative Construction and Operation of Coal-fired Self-owned Power Plants" (Draft for Opinions) was issued, which involves eight key contents: strict control of newly built self-owned power plants, cleaning up illegal self-fired power plants, rectification of unfair social responsibility within a time limit, strict implementation of policy-based cross-subsidy policy, strict completion of environmental protection renovation in accordance with regulations and deadlines, and undertaking power grid safety regulation. Peak and clean energy absorb responsibility, resolutely eliminate backward capacity of coal-fired self-owned power plants, standardize the management of resources comprehensive utilization of self-owned power plants.
The electrolytic aluminium industry is a major consumer of electricity, and the proportion of self-provided electricity is as high as 75%. The release of the plan will have a far-reaching impact on the cost of electricity in the electrolytic aluminium industry. Xie Honghe believes that in the short run, it mainly affects incremental capacity. If new production capacity needs self-owned power plants, but the formalities are incomplete, the construction or commissioning process will be delayed, thereby reducing the output contribution to 2018. In the medium and long term, the reimbursement of related costs will raise enterprise costs and dilute enterprise profits, thus supporting medium and long-term aluminium prices.
In addition, on May 1, 2018, VAT rates such as manufacturing dropped from 17% to 16%. Analysts from Shanghai Nonferrous Metal Network said that for the upstream and downstream enterprises in the aluminum industry chain, the reduction of VAT tax rate reduces the tax burden and cost of enterprises, thus providing support for the environmental upgrading of enterprises and the transformation of downstream enterprises affected by exports.

From China Securities Daily