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On December 1, 2020, the spot aluminum price of LME was US$2044/ton, and the price of SHFE aluminum was RMB 16,615/ton. The price of aluminum in two different markets reached a new high in more than two years.

Although it has reached a new high, if we look at it for a long time, the current aluminum price is still in a reasonable or even low range; if the shortage of supply continues in the future, aluminum prices are expected to rise further.

Aluminum price is in a reasonable range

Because of its light material, aluminum is widely used in land, sea and air transportation such as automobiles, trains, subways, ships, airplanes, rockets, and spacecraft.

From the perspective of LME aluminum (London Metal Exchange) price fluctuations, in the past 20 years (2001-2020), the low point of LME spot aluminum was $1,255/ton in 2001 and the high point was $3,380/ton in July 2008. Based on this calculation, the median value of LME spot aluminum in the past 20 years was US$2,317/ton. On December 1, 2020, the LME spot aluminum price was US$2044/ton. Although the aluminum price has hit a new high in the past two years, it has not reached the median value of the past 20 years. From this point of view, the current LME spot aluminum price is in a reasonably low range.

If compared with the 2007-2008 high point of supply and demand, the global primary aluminum production in 2007 was about 38.15 million tons, the consumption was about 37.81 million tons, and the average LME aluminum spot price was US$2661/ton. In 2008, the global primary aluminum production was about 39.96 million tons, and the consumption was about 38.13 million tons. The average LME aluminum spot price was US$2,573/ton. The global price of primary aluminum in July 2008 was as high as US$3,380/ton, much higher than the current price level of US$2044/ton. At that time, the global primary aluminum was in an oversupply situation. In 2019, global primary aluminum production was 63.78 million tons, and global primary aluminum consumption was 65.15 million tons, which is in short supply.

If the current aluminum price is compared with the 2008 high, the current global primary aluminum price is not high. The price of US$2044/ton is only 60.47% of the 2008 high.

Regardless of the past average value or the 2008 high, the current global primary aluminum price is not high and is in a reasonable range.

 Tight supply will continue

From 2017 to 2019, the output of the global primary aluminum market was 63.28 million tons, 64.21 million tons, and 63.78 million tons, and the consumption was 63.59 million tons, 65.7 million tons, and 65.15 million tons. In the past three years, global primary aluminum consumption has always been higher than production, and the supply is in short supply. From the perspective of supply and demand, the current increase in aluminum prices is more caused by changes in the supply and demand structure.

From the perspective of global and Chinese capacity utilization, as of the end of December 2017, the capacity utilization rate of global primary aluminum companies, including China, was approximately 82.5%, of which the capacity utilization rate of Chinese primary aluminum companies was approximately 81.6%. As of the end of December 2018, the capacity utilization rate of global primary aluminum companies, including China, was about 83.9%, of which the capacity utilization rate of Chinese primary aluminum companies was about 83.4%. As of the end of December 2019, the capacity utilization rate of global primary aluminum companies, including China, was about 86%, of which the capacity utilization rate of Chinese primary aluminum companies was about 88%. In the past three years, the global and China's capacity utilization rate has been continuously increasing, and the space has become less and less.

China is a large aluminum industry, with its output and consumption ranking first in the world for 18 consecutive years. In 2019, China's primary aluminum production was approximately 35.93 million tons, and its consumption was approximately 36.55 million tons, accounting for approximately 56.33% and 56.10% of the global total respectively. In 2019, China’s alumina and electrolytic aluminum output were 71.55 million tons and 35.93 million tons, accounting for 54.45% and 56.33% of global output; China’s alumina and electrolytic aluminum consumption were 72.98 million tons and 36.55 million tons, respectively. 56.20% and 56.10% of global alumina and electrolytic aluminum consumption. China's production and sales account for more than half of the world's total. Therefore, changes in China's production capacity, output, and consumption have a huge impact on the world aluminum market.

The aluminum industry is an important basic industry of the country. As important basic raw materials, alumina and primary aluminum are closely related to industries such as electromechanical, electric power, aerospace, shipbuilding, automobile manufacturing, packaging, construction, transportation, daily necessities, and real estate. The price of its products is extremely close to the macro economy.

From the perspective of supply, taking alumina as an example, according to Aladdin’s statistics, the top ten alumina companies in the country in 2016 were Chinalco, Xinfa Aluminum, Weiqiao Aluminum, Jinjiang Aluminum, Oriental Hope, and State Power Investment, Huayin Aluminum, Nanshan Aluminum, Yunnan Aluminum and Xiangjiang Group have built a combined production capacity of 64.9 million tons, accounting for about 86% of the country's total production capacity, and their total output is 55.27 million tons, accounting for about 91% of the country. This shows that China's alumina industry is highly concentrated.

In recent years, the Chinese government has continuously eliminated outdated production capacity by advancing supply-side structural reforms, encouraging and guiding low-competitive production capacity to withdraw from the market. At the same time, it has strictly controlled new electrolytic aluminum production capacity by setting a production cap, and new projects can only implement equal amounts. Or reduction replacement. The state has carried out a series of environmental remediation actions to control the total amount of emissions, so that enterprises that violated regulations and did not meet environmental protection standards voluntarily shut down production capacity, which also caused the output of China Aluminum to continue to decline. From 2017 to 2019, China's primary aluminum output was 36.66 million tons, 36.46 million tons, and 35.93 million tons. In the past three years, due to the impact of supply-side reforms, China's primary aluminum output has continued to decline. From the current point of view, the tight supply trend is difficult to reverse in the short term.

 Stable growth on the demand side

From the perspective of consumption, China's primary aluminum consumption in 2019 was 35.4 million tons, 37.13 million tons, and 36.55 million tons respectively. In the past three years, while output has been declining, consumption has increased slightly.

In recent years, high-end manufacturing industries have used more and more industrial aluminum materials, such as aviation, high-speed rail, automobiles, etc. Taking high-speed rail as an example, aluminum alloy car bodies have light weight, corrosion resistance, good appearance and smoothness, and are easy to manufacture complex curved surfaces. Car bodies and other advantages have been widely used; in the automotive field, the use of aluminum instead of steel for body and parts can effectively achieve lighter weight, thereby significantly reducing energy consumption, and is increasingly being valued by automobile and parts manufacturers.

In the consumption structure, the largest application of aluminum in China is currently in the construction industry, accounting for 32%; followed by rail transit, accounting for 20%; followed by power electronics, mechanical equipment, packaging and other fields. China's construction industry and rail transit together account for more than 50%. However, in North America, transportation is the largest aluminum-using area, accounting for 47%, which is twice the proportion of aluminum used in rail transit in China. In the future, while advocating energy conservation, emission reduction, and a green and low-carbon life, aluminum for rail transit and aluminum for automobile lightweight will become key growth points for the consumption of aluminum processing industry, and the demand for aluminum in these important areas is difficult to change in the short term.

In the field of construction, aluminum profiles used in construction are mainly used for public facilities, building frameworks, roof or wall maintenance structures, frameworks, doors and windows, ceilings, sun visors, lamp supports, etc. The application of aluminum profiles in the construction industry has a long history and has a history of more than 100 years. In 2019, China's GDP exceeded 99 trillion yuan, an increase of 6.1% year-on-year; the total national fixed asset investment (excluding rural households) was 55.15 trillion yuan, an increase of 5.4% year-on-year; the national real estate development investment was 13.22 trillion yuan, an increase of 9.9% year-on-year; National commercial housing sales were 15.97 trillion yuan, a year-on-year increase of 6.5%; the total output value of the national construction industry was 24.84 trillion yuan, a year-on-year increase of 5.7%. With the development of China's economy, the construction industry will maintain a steady growth, and the demand for construction aluminum will also increase simultaneously.

In the field of rail transit, the "Outline for Building a Powerful Transportation Country" issued and implemented by the Central Committee of the Communist Party of China and the State Council in September 2019 mentioned that "building an integrated urban agglomeration transportation network, promoting arterial railways, intercity railways, and urban (suburban) railways , The integrated development of urban rail transit, and strengthen the research and development of new vehicles. Major breakthroughs in 30,000-ton heavy-duty trains and high-speed wheel-rail freight trains with a speed of 250 kilometers per hour will be achieved. With the extension and extension of subway lines in second-tier cities and the continuous increase of subway projects, the demand for aluminum will steadily rise.

In the automotive field, driven by the world's automotive lightweighting process, China has begun to vigorously promote the market application of new energy vehicles. Major automakers represented by Tesla have settled in China.

According to CRU statistics, in 2019, the total global demand for automotive sheets was approximately 1.7 million tons, of which 950,000 tons were in North America, 550,000 tons in Europe, 90,000 tons in China, and 110,000 tons in other markets. At present, there is a big gap between China and the European market and the North American market. It is expected that in 2020, the total global and Chinese automotive sheet demand will maintain a relatively steady growth.

　　In the aviation sector, Airbus delivered 863 aircraft throughout 2019, an increase of 7.9% over 2018. At present, in the jetliner fleet operated by airlines, the products manufactured by the two major trunk aircraft manufacturers Boeing Civil Aircraft Group and Airbus Europe occupy an absolute market share. According to statistics released by the Civil Aviation Administration, This market is completely controlled by the two major manufacturers, and the market share is almost evenly divided. With the successful completion of the first flight of the "106 aircraft" of COMAC's C919 large passenger plane, China's aircraft manufacturing industry will develop rapidly in the next 10 years, which is expected to break the competitive landscape of the aviation manufacturing industry. The demand for aviation aluminum will also continue to increase. It is expected that in 2020, the domestic demand for aviation panels will increase from 40,000 tons/year to 50,000 tons/year.

Due to the rapid economic development, China's aluminum industry faces a higher demand than the global market. Futures prices in different markets can also confirm this. The price of LME aluminum (London Metal Exchange) rose from the lowest point in April 2020 at US$1,455/ton to the recent highest of US$2063/ton, an increase of 41.79%; the price of SHFE aluminum (Shanghai Futures Exchange) increased from 2020 The lowest point of 11,225 yuan/ton in April rose to the recent highest of 16,765 yuan/ton, an increase of 49.35%. The increase of SHFE aluminum on the Shanghai Futures Exchange was higher than that of the LME aluminum on the London Metal Exchange.

 On the whole, due to the decline in output caused by the adjustment of China's environmental protection policy and the increase in demand brought about by the economy, the supply and demand gap of aluminum products is expected to continue in the future. Moreover, the current aluminum price is only at the historical median value and is expected to rise further in the future.