Aluminium

China Fortnightly

Wan Ling
Principal Analyst
+86 10 6510 2183
ling.wan@crugroup.com

26 JUNE 2020

 S U M MA RY

Chinese aluminium price

stays firm
SHFE aluminium prices remain strong due to the recovery in demand in China and the
decline in inventory. Alumina prices have edged up supported by the stronger aluminium
price. The import arbitrage window for aluminium opened again in late June, which may drive
more imports of aluminium into China over the next three to four months. 3 new projects with
a total capacity of 525,000t/y have been ramped up from May till early July. China issued the
No.8 batch of aluminium scrap import quota for 2020. SHFE aluminium prices are expected
to remain strong over the next two weeks.

©2020 CRU International Ltd | All rights reserved

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 Editor
Guillaume Osouf
Principal Analyst, CRU London
t +44 20 7903 2090
e guillaume.osouf@crugroup.com

CONTRIBUTORS

CRU London CRU London CRU London CRU London CRU London

Paul Williams Eoin Dinsmore Euan Sadden Lais Santos James Wren
Head of Aluminium Principal Analyst Analyst Analyst Analyst
t +44 20 7903 2204 t +44 20 7903 2037 t +44 20 7903 2017 t +44 20 7903 2277 t +44 20 7903 2136
e paul.williams@crugroup.com e eoin.dinsmore@crugroup.com e euan.sadden@crugroup.com e lais.santos@crugroup.com e james.wren@crugroup.com

CRU Beijing CRU Mumbai CRU Pittsburgh

Wan Ling Shankhadeep Mukherjee Doug Hilderhoff

Principal Consultant Senior Analyst Principal Analyst
t +86 10 6510 2206 t +91 22 4504 5709 t +1 724 759 7872
e ling.wan@crugroup.com e shankhadeep.mukherjee@crugroup.com e doug.hilderhoff@crugroup.com

Aluminium
Monitor
and Prices
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© CRU International Ltd. 2020. All rights reserved

Aluminium China Fortnightly 26 JUNE2020

► AN A L Y SI S

SHFE aluminium prices remain

strong
SHFE aluminium prices remained strong over the past two weeks. SHFE aluminium prices
continued to rise in the week of 19 June but retreated slightly in the week of 24 June. In the
week of 19 June, the State Council called for banks to share profits of 1.5trillion in 2020
through refinancing, lowing lending rates and reduction of fees, which is positive for the
commodity market sentiment including aluminium. The declining inventory supports the
aluminium price in China. SHFE cash month price reached RMB13,795/t on 24 June, down
slightly by 0.5% from RMB13,865/t on 12 June. Meanwhile, SHFE 3-month prices were
RMB13,460/t on 24 June, up by 1% from RMB13,345/t on 12 June. SHFE market remains in
a big backwardation with spread narrowed to RMB335/t on 24 June from RMB520/t on 12
June. SHFE markets were closed on 25-26 June due to the Dragon Boat Festival in China.

Figure 1: SHFE prices remain strong with market moving into physical premium again
Aluminium prices remain strong Makret moves to physical premium
RMB/t RMB/t
SHFE cash price 100 day MA Changjiang - SHFE cash
SHFE three month Nanhai - SHFE cash
500
14,500
400
14,000 300
200
13,500
100
13,000 0
(100)
12,500
(200)
12,000 (300)
(400)
11,500
(500)
11,000 (600)
28-Mar-20 27-Apr-20 27-May-20 26-Jun-20 28-Mar-20 27-Apr-20 27-May-20 26-Jun-20

DATA: SHFE, CRU

Market moves into physical premium again

The physical market moved into premium again over the last two weeks, on the back of the
continuous decline in inventory. The physical premium went up to RMB305/t on 24 June
from a discount of RMB65/t on 12 June in Nanhai market, at the same time, the physical
premium moved up to RMB225/t on 24 June from a small discount of RMB65 on 12 June in
Changjiang market.

Aluminium demand in China has continued to improve recently. According to CAAM, China
auto production achieved 18.2% y/y growth to 2.187M units in May. According to NBS data,
investment in the property market totalled RMB4.59trillion in the first five months, a very mild
decline of 0.3% y/y. The demand for consumer related products, such as can stock, is
improving as well. NBS data shows that Chinese beer and soft drink production has
recovered well. For instance, the beer production totaled 4.081bn liters in May, up by 14.6%
y/y. The soft drinks production was 15.653Mt in May 2020, a mild increase of 0.8% y/y. The
feedback from the smelters in China is that the majority of the smelters have relatively low

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Aluminium China Fortnightly 26 JUNE2020

inventories in China. The demand for aluminium is expected to further recover in China in
July. The second wave of Covid-19 in Beijing from 11 June should not impact the overall
trend as it will be controlled in a few weeks.

On the supply side, a total capacity of 525,000t/y new smelting capacity has been ramped
up from May till early July. Chalco’s Shanxi Huarun smelter started to ramp up the second
250,000t/y capacity from June, which is expected to be fully operated by early July after the
smelter secured the power supply. As we reported before, Guangyuan Linfeng started to
ramp up the second 125,000t/y in June, and Yunnan Wenshan started up to 150,000t/y from
May. The ramp ups of this capacity will push China aluminium production higher in July.

Ingot and billet stocks continue to decline

The reported ingot stock declined to 734,500t on 24 June, down by 53,000t from 787,500t
on 12 June. The pace of the decline is slowing substantially as production is gradually
increased with the ramp up of the new projects in Yunnan, Sichuan and Shanxi. Meanwhile,
the billet stocks in Guangdong declined to 26,000t on 24 June, down slightly by 13,000t on
12 June. The inventory is expected to further decline in the next two weeks but at a slower
pace.

Figure 2: Reported ingot stock continues to fall

Reported ingot stock remain decreasing Billet stock keep decreasing in Guangdong
'000t '000t
Reported billet stock in Guangdong
Jiangsu Shanghai Nanhai Zhejiang
100
Tianjin Henan Chongqing Shandong
1,800 90

80
1,500
70

1,200 60

50
900
40
600 30

20
300
10
0
Jan-19 May-19 Sep-19 Jan-20 May-20

DATA: Nanchu warehouse, CRU

Alumina prices edge up further on low liquidity

Alumina prices edged up over the past two weeks due to the relatively strong aluminium price
in China. CRU’s Alumina Basket price is RMB2,250/t, up by RMB40/t compared with
RMB2,210/t in the week of 12 June. However, the market lacks transactions despite the high
price. The ramp up process of new smelting capacity will bring more demand for alumina in
the coming months. However, the 2Mt/y Guangxi Fangchenggang refinery is set to start up
by the end of June, which is expected to place some downward pressure on the alumina
prices reducing the requirements for imported volumes.

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Aluminium China Fortnightly 26 JUNE2020

Figure 3: China alumina prices edge up

RMB/t
CRU China Alumina Basket Price
2,600

2,500

2,400

2,300

2,200

2,100

2,000
26-Feb-20 27-Mar-20 26-Apr-20 26-May-20 25-Jun-20

DATA: CRU

Aluminium import arbitrage opens again

Import arbitrage for near months contract on SHFE, including August contract, has opened
again in the past two weeks. The traders in Asia ex. China have received more enquires
about exporting aluminium into China in the past two weeks. We expect there would be
around 200,000t of primary aluminium to be imported into China from May to August with the
opening of the import arbitrage since late April. The import arbitrage was closed for a while
in the first two weeks of June. The imports of primary aluminium are likely to be up to 400,000-
500,000t from May till October if the import arbitrage window continues to be open. According
to China Customs, China imported 119,145t of unwrought aluminium and aluminium semis
in May, up by 12% from 106,059t in April. Majority of the imports should be secondary
aluminium alloy rather than primary aluminium. The volume of primary aluminium imported
in May is very limited. The imports of primary aluminium are expected to increase significantly
in July.

Figure 4: SHFE much stronger than LME

SHFE (Cash) RMB/t LME （cash）

L: RMB/t R:US$/t
15000 1850
14500 1800

14000 1750
1700
13500
1650
13000
1600
12500
1550
12000 1500
11500 1450
11000 1400
22-Mar-20 22-Apr-20 22-May-20 22-Jun-20

DATA: SHFE, LME, CRU

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Aluminium China Fortnightly 26 JUNE2020

China issues scrap quota for batch 8

China issued a total of 5,840t of aluminium scrap import quotas in the No.8 batch list on 16
June 2020, which brought the year-to-date import quota to 483,999t. China customs is likely
to finalise the implementation measure for the new scrap import policy before 1 July. The
new standard which is called “Recycling materials for cast aluminium alloys” will become
effective from 1 July. Aluminium scrap HS code could be slightly adapted to suit the new
standard. China has imported 270,390t of aluminium scrap in the first four months this year,
down by 44.26% y/y.

SHFE aluminium price to remain strong

Demand is expected to continue to recover, with production growth still lagging for now. The
aluminium price is likely to remain strong in the next two weeks. SHFE cash month prices
are likely to be traded in a range of RMB13,500-14,000/t over the next fortnight.

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