Inventories are rising, and institutions are arguing about the strength of aluminum prices

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【China Aluminum Network】Shanghai aluminum continued to fluctuate in a narrow range this week. Analysts said that with the acceleration of the pace of electrolytic aluminum production capacity, aluminum prices have formed a "easy to go up and difficult to fall" situation. The recent slowdown or even correction in the upward pace of aluminum prices is mainly due to the market's unease about rising inventories. At present, the inter-agency views on the aluminum price market are diverse, bullish and bearish voices are rising one after another, so before the balance force is completely broken, aluminum prices are expected to be dominated by strong shocks!

Upstream supply is a cause for concern

Analysts said that the logic of the rapid rise of aluminum prices was mainly due to the increasingly unbalanced supply and demand relationship between the domestic and foreign aluminum markets. On the one hand, in recent years, the imbalance between supply and demand in the global aluminum market has further intensified. On the other hand, the domestic coal and steel industries have achieved phased results in supply-side reform, and the focus of supply-side reform has gradually focused on the electrolytic aluminum industry. Therefore, on the basis of downstream consumption continuing to be better than expected, the main factors affecting the trend of the aluminum market are also upstream supply.

According to data released by the World Bureau of Metal Statistics (WBMS), in the first half of 2017, the international primary aluminum market was short of 1.074 million tons, while the supply shortage in 2016 was only 1.097 million tons. From the demand side, in the first half of the year, global primary aluminum demand was 30.8 million tons, an increase of 2.008 million tons over the same period last year. From the supply side, primary aluminum production in the first half of the year only increased by 1.692 million tons year-on-year. Therefore, these two sets of data reflect the intensification of the imbalance between supply and demand in the global aluminum market. In addition, data show that China's primary aluminum production is estimated to reach 16.839 million tons, accounting for more than 56% of the world's total output. Therefore, the trend of China's primary aluminum supply can be described as "pivotal" in the international aluminum market.

As early as April this year, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Land and Resources and the Ministry of Environmental Protection jointly issued the Notice on the Special Action Work Plan for Cleaning Up and Rectifying Illegal Projects in the Electrolytic Aluminum Industry (hereinafter referred to as the "Notice"), deciding to use 6 months and 4 stages to fully complete the clean-up and rectification of illegal projects of electrolytic aluminum. As the deadline set in the Notice approaches, the progress of the current capacity reduction has once again attracted attention.

CITIC Futures analysts said that on the whole, the current supply-side reform as the leading factor in the illegal production capacity reduction has basically landed. Therefore, the focus of the market in the later stage is expected to be more inclined to changes in market fundamentals.

Inter-agency disagreements widened

The current upward trend of aluminum prices has not completely broken. However, around the issue of rising aluminum inventory, the inter-agency judgment on the future market of aluminum prices has been significantly divided!

CITIC Futures analysts said that from the perspective of spot market performance, the current social inventory of primary aluminum and exchange inventory have increased, among which the situation that social inventory continues to hit a record high is particularly noteworthy. In view of the current weak fundamentals of the aluminum market, it is difficult to completely reverse the situation, it is recommended that investors be wary of the risk of pullback.

In response to the inventory situation, Huatai Securities said that the number of available days corresponding to the current inventory is about 14 days, which is in a reasonable center, and considering the market's bullish expectations and the tendency to actively add inventory, the impact of the so-called "high" inventory needs to be viewed dialectically. The agency believes that since June, companies have successively announced production cuts, and considering the time lag of the production reduction cycle, it is expected that production may decrease in September and October. At the same time, quarterly supply is expected to exceed demand in the fourth quarter. As overseas supply also exceeds demand, the domestic gap may be difficult to alleviate through imports. Therefore, after the full reduction of production capacity, the probability of price increase is still large, and due to the existence of short supply, the upper limit of the price is difficult to predict.

Analysts say that overall, the game between current expectations and reality still exists. Supply-side reform is an important force to promote the continuous upward movement of aluminum prices, and weak fundamentals have limited the increase, in the short term, aluminum prices will remain strong shock pattern!