Market Report Q2 2009 1 Analysis on aluminum ingot price 1.1 Price declines and stabilizes after rebounding in China The State Reserve Bureau stored about 300,000t of aluminum ingot in March, influenced by which, the aluminum ingot supply declined obviously in April. Therefore, the price went up to RMB14800/t at the highest, but the basic market fundamentals remain weak in China. After the storage, the major producers began to clear stocks in spot market, leading to sufficient stocks. The aluminum ingot price went down accordingly and slid down to RMB12,800/t late May. Entering June, the crude oil price went up to USD70 per barrel from less than USD60 per barrel, and the international aluminum ingot market went strong, too. Pushed by the strong international market, the aluminum ingot price rebounded to RMB13,500-13,600/t in China in the month and stabilized for a period. In addition, although the stocks reached 430,000t in China in June, the aluminum price seemed hard to decline as many large-scale producers held on from selling. ingot price curve in China Apr-Jun (yuan/t) 1.2 settlement on LME went up In the second season, the aluminum ingot stocks continued to rise on LME, climbing up
from 3.5 million tons in April to 4.4 million tons in June. Weighed on by the stocks, the settlement price for aluminum ingot on LME went down to below USD1,400/t from USD1,490/t in May. However, with the oil price going up to USD71 per barrel, the settlement aluminum price also climbed up to USD1,600/t. The aluminum price on LME did not change greatly in June, keeping around USD1,600/t. stocks curve on LME Apr-Jun (tons) settlement curve on LME (USD/t) Apr-Jun 2 Alumina price and supply 2.1 Price analysis
In view of the high-held aluminum ingot price in April, the alumina price kept at a high level. The average price for alumina of Chinese origin stood around RMB2,200/t and that for imported alumina from Australia stood at around RMB2,260/t. However, the alumina price began to decrease in May, with the sliding aluminum ingot price, and went down to below RMB2,200/t, getting close to RMB2,000/t. Early June, the price for alumina of Chinese origin decreased to RMB1,950/t. At the same time, the price for imported alumina also reduced to the same level with that of Chinese origin. However, in the second half of June, the aluminum ingot price rebounded gradually to RMB13,500-13,600/t. The alumina price also went up and stabilized at around RMB2,100-2,150/t. The price curve for alumina of Chinese origin Apr-Jun (yuan/t)
The price curve for Australian alumina Apr-Jun (yuan/t) 2.2 Alumina supply in China The alumina output was on the upward trend in the second quarter. In April, most aluminum ingot producers could earn profit from the high-held price, so they considered resuming the suspended production. Expecting the alumina demand to recover, the alumina producers in China also increased production. The total alumina output was about 5.57 million tons from April to June, among which 1.76 million tons were for April, but 1.93 million tons for June. The following table is about the output resumption for some alumina producers in China (Unit: ten thousand tons): Company Resumed production Former output Total annual output Shandong 35 117 220 Shandong Lubei Chemicals Shandong Chiping Xinfa Shandong Weiqiao 50 0 100 50 200 400 100 200 400 Shanxi Xiaoyi Tianyuan 10 0 25
Chemicals Henan East Hope 50 100 250 Guangxi Huayin Guangxi Xinfa 40 80 160 90 100 190 Chongqing Bosai Group 5 18 23 Chinese alumina output in 2nd quarter (Ten thousand tons) Output 195 190 185 180 175 170 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% Output Monthly change 165 0.00% Alumina output chart in 2 nd quarter The imported alumina price stood at around RMB2,250-2,300/t early April, and traders could get much profit from the business. Therefore, the alumina import reached about 650,000t in April, up by about 135% year-on-year. However, the import market shrunk gradually in May and June, when the price decreased close to that of Chinese origin, so there is limited profit left for the traders. The alumina import declined obviously. China imported about 530,000t of alumina in June and 1.65 million tons totally in the second quarter.
Chinese import of alumina in 2nd quarter (Ten thousand tons) Import 70 60 50 40 30 20 10 0 160.00% 140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% Alumina import Monthly change Alumina import chart in 2 nd quarter 3 Output decreases overseas but rises domestically 3.1 ingot producers resume suspended production in China Since March many aluminum ingot producers began to consider resuming suspended production. The producers got free from losses from April, when the aluminum ingot price went up greatly. Furthermore, many local governments forced the producers to resume production by issuing beneficial policies like direct-power supply and loan. It is estimated that the suspended production may reach 2,000,000tpy until October. The following table is about the aluminum ingot production resumption (Unit: ten thousand tons): Company Resumed suspended production Total annual capacity Shandong Qixing 6 13 Henan Longxiang 5.5 5.5 Hunan Chuangyuan 5 33 Yugang Longquan 30 60 Guizhou Anshun Huangguoshu 6 15 Shanxi Zhaofeng 12 12
Guangxi Baise Yinhai 5 20 Guangxi Laibin 12.5 25 Guangxi Pingguo 5 15 Hubei Yichang Yangtze River 7 13.6 With the resuming production, the aluminum ingot output went up in the second quarter. China produced about 876,000t of aluminum ingot in April, but the output climbed up to 1 million tons in June. It is predicted that the output may continue to rise in the third quarter. Chinese aluminum output in 2nd quarter (ten thousand tons) 110 16.00% 105 100 14.00% 12.00% 10.00% Output 95 90 8.00% 6.00% 4.00% Output Monthly change 85 80 2.00% 0.00% -2.00% 75-4.00% ingot output chart in 2 nd quarter 3.2 World aluminum output declines The demand for aluminum ingot remained weak in the second quarter in the world. The aluminum ingot stocks kept sufficient on LME. Although 3-month aluminum ingot on LME went up as a whole in the second quarter and reached USD1,600/t in June, most producers still suffered losses in the world. Therefore, the aluminum ingot output reduced internationally in the second quarter. The following data about aluminum ingot output in different continents from April to June is from IAI (Unit: ten thousand tons):
Month Africa North America South America Asia West Europe Mid and East Europe Oceania In total Average daily output Apr. 135 396 207 359 309 334 181 1,921 64.0 May 141 403 211 374 315 342 187 1,973 63.6 Jun. 140 380 207 361 299 331 181 1,899 63.3 From the above table, we can see the decreasing daily aluminum ingot output in the world. 4 ingot import declined in China The aluminum ingot import went down gradually from April to June. In April, the aluminum ingot price kept firm in China and higher than that in the overseas market. Therefore, the import volume climbed up to 360,000t in the month, up by about 500% compared with that in the previous month. However, the price began to slide down comparatively in May and June in China, but that on LME increased to USD1,600/t in June. Traders had to face losses during the import business, so the second quarter saw aluminum ingot import decrease. The import volume was about 260,000t on average in May and June respectively. Chinese import of aluminum ingot in 2nd quarter Import 40 35 30 25 20 15 10 5 600.00% 500.00% 400.00% 300.00% 200.00% 100.00% 0.00% ingot import Monthly change 0-100.00% ingot import chart in 2 nd quarter 5 Rise and rebound for aluminum sections output and export market
With the recovering macro-economy, the demand for aluminum sections rebounded somewhat and the output increased gradually. China only produced about 1.44 million tons of the material in April, but the output climbed up to 1.68 million tons in June. The following chart is about aluminum sections output in the second quarter (Data from National Bureau of Statistics of China). Chinese aluminum sections export in 2nd quarter (Ten thousand tons) 180 170 160 150 140 130 Output We can learn from the above chart that the demand for aluminum sections recovered gradually in the second quarter, especially for June, when the aluminum ingot price kept relatively stable at around RMB13,500-13,600/t and the dealers did not need to worry about losses, so the output saw a great increase. It is estimated that the average stream efficiency for the aluminum sections producers was about 70-80% in the second quarter, up from 50-60% in the first quarter. In the first half of 2009, China issued many beneficial policies to support the household appliances market in rural areas, which greatly drove the aluminum sections market. In addition, China adjusted up the export tax rebate of some aluminum sections for several times in the first half of the year. Early June, China raised the export tax rebate of some aluminum foil products from 13% to 15%, which pushed up the export market somewhat. Therefore, the export market rebounded slightly in the second quarter. However, it is hard for the export market to recover thoroughly in a short time, as the aluminum ingot price remains much higher than that in the overseas market. We can see the aluminum products export change from the following chart (Data from China Customs).
Chinese aluminum sectionsexport in 2nd quarter (Ten thousand tons) 14 12 10 8 6 4 2 0 Export 6 ingot price fluctuation to be strengthened In view of the beneficial aluminum sections data in the second quarter, the demand for aluminum ingot is likely to recover gradually in the second half of the year. However, the aluminum ingot supply may continue to rise due to the increasing production. Furthermore, the State Bureau of Reserve once declared not to store the metal again this year, so the aluminum ingot price may not climb up greatly. In the first half of 2009, many nations issued moderate loose monetary policies, in a bid to stimulate the economic development. The rising capital supply increased people s inflation expectation, which also added many unexpected factors on the stocks and futures market domestically and internationally. Under the noncommittal aluminum export market, the price fluctuation is expected to be strengthened in the third quarter, coupled with more risk. With the resuming aluminum ingot production, the demand for alumina may warm up in the following months. Therefore, the alumina price may climb up vibrantly in the second half. However, the price increase is greatly decided by the alumina output to some extent. If the alumina producers continue to increase production, it will be difficult for the price to rise.