De-stocking of aluminum smelting industry is coming soon

As the prices of coal and crude oil continue to fall, the cost of raw materials for electrolytic aluminum will gradually shift downward as time goes by. The destocking of the aluminum smelting industry will gradually come in the second quarter. Although various companies in the industry are unwilling to cut production, long-term losses have made the company unbearable. The bottoming of aluminum prices will be a long and painful process.

From what we have learned, from the end of the fourth quarter of 2011, some domestic aluminum smelting enterprises have already begun to lose money. After a long period of suffering of about one and a half years, the aluminum price continued to drop, and more aluminum smelting companies joined the ranks of the loss makers. Currently. A number of corporate cash flow losses have continued for a longer period of time, and the extent of losses has been expanding along with the decline in aluminum prices. We estimate that since March, Shanghai Aluminum's forward price has dropped to the lowest level around 14250. Due to low prices, many grid-powered smelters in Henan, Shanxi, Guangxi, and Yunnan have cash flow losses of more than 500-1,000 yuan. In this context, the Nonferrous Metals Industry Association has convened several large domestic aluminum smelting companies to address the issue of excess capacity at the current stage and discuss the possibility of reducing production. However, due to the different operating costs of various companies, several large companies failed to reach an agreement on the specific details of the reduction of production.

Although several domestic large-scale aluminum companies failed to reach an agreement on production cuts recently, this at least shows that many companies in the industry have already reached a point where it is difficult to continue. Production cuts are the right choice. We continue to insist that in the April report, there is no change in the view that the large-scale reduction in domestic aluminum smelting enterprises in the end of the second quarter or the third quarter is a high-probability event. Out of its insistence on this view, we expect that Shanghai Aluminum's fall in May is limited. If the reduction in production does not form a scale, Shanghai Aluminum's weakness will continue.