Basic solid Shanghai aluminum can still see the high line

Since the peak of the supply-side reform in 2017, Shanghai aluminum has entered a two-year downward period. In 2020, the sharp drop caused by the new crown epidemic accelerated the end of the bear market, and aluminum prices began to strengthen again.After the Spring Festival in 2021, bulk commodities as a whole entered a period of accelerated rise, and aluminum prices, supported by supply disruptions in some regions, broke through the 2017 supply highs.From the deductive logic of electrolytic aluminum fundamentals, we believe that the rise in aluminum prices is not over, Shanghai aluminum is expected to rush to 19000 yuan/ton area within the year. 

Solid fundamentals

After the Spring Festival, Shanghai aluminum followed the market sentiment to rise, the trading logic of the bulls mainly focused on the inflation expectations and other macro positive.And since Wednesday, Shanghai aluminum skyrocketed and broke through the previous high, is more return to their own fundamental logic.As the overall energy consumption in Inner Mongolia will not reach the standard in 2020, it is rumored in the market that electrolytic aluminum plants in eastern Mongolia will reduce production in the form of maintenance. Currently, Jinlian, Huomei Hongju and Chuangyuan have a total production capacity of 2.6 million tons of electrolytic aluminum in eastern Mongolia, but the specific volume of reduced production is not clear.And, more importantly, had planned to put into production in 2021, Inner Mongolia region about 600000 tons of electrolytic aluminium new capacity, regional excessive energy consumption problem emerges, the market for new production of doubt can fall to the ground as scheduled, the years aluminium supply marginal might change, the current market sentiment have played an important role to detonate, cause every breakthrough before the high prices.

The cycle of supply and demand matching reverses

After a long cycle of overcapacity, the supply side reform gradually cleared out the backward capacity of electrolytic aluminum in 2017, and the ceiling of the compliance capacity of electrolytic aluminum was determined to be around 44 million tons, while the current operating capacity has been nearly 40 million tons, and the long-term supply growth is limited.In a carbon-neutral context, aluminum, as an important material for lightweight alternatives, has a promising future in the new energy sector, not to mention the fiscal stimulus awaiting the start of the US and the Democratic administration's preference for new energy.From the large cycle point of view, the aluminum market supply and demand match has begun to reverse.For the year, the Federal Reserve stressed that the loose monetary policy will not change in the short term, the Biden administration's $1.9 trillion fiscal stimulus is imminent, the U.S. real estate industry remains prosperous, manufacturing replenishment is still in progress, external demand is expected to become an important highlight of aluminum consumption growth in the year, and the flagging aluminum exports are expected to be boosted in 2020.

Domestic, after the Spring Festival electrolytic aluminum storage range is moderate, and slightly more than 1 million tons of aluminum ingot total inventory in recent years in the absolute low, effective support for the price.The market expects that the local New Year will lead to the return to work after the holiday and consumption, and further weaken the extent of accumulation.From the post-holiday survey, profile, die-casting alloy and other processing industries generally shortened the holiday, although the high aluminum price suppressed part of the purchase demand, but in the context of the consumer season is about to start, the recovery of real demand in spot and inventory is expected to be reflected soon.In terms of domestic supply, the newly put into production capacity in the first quarter is mainly concentrated in Yunnan, with a total of less than 300,000 tons. The short-term supply release pressure is not large. The energy consumption problem in Inner Mongolia may cause the butterfly effect, which further reduces the supply increment in the year.Electrolytic aluminum fundamentals solid, support prices up.

Long thinking trading

After Shanghai Aluminum broke through the high point of supply-side reform, the upside space opened up. The contradictions that need to be paid attention to in the future market mainly focus on the actual impact of energy consumption restrictions in Inner Mongolia on the existing and newly put into production capacity of electrolytic aluminum, and the effective transmission of the US fiscal stimulus to the demand.Overall, electrolytic aluminum fundamentals are solid, supply and demand matching cycle may be reversed, aluminum may become the largest variety of non-ferrous plate expected difference, the year raised Shanghai aluminum high expected to 19000 yuan/ton, suggested long thinking trading.