Editorial

Aluminum – Import losses widened and cargo holders have a rising feeling of sitting on the sidelines

Date Apr 13 2018 17:32:50Source:SHMET

Traders reported that spot premiums CIF shanghai remained at level $120-$140 as usual, so did the physical warrants. LME C-3m valued edged to $52B. SHFE Spot/LME 3M arb flattened out at 6.16, suggesting importing may lose around RMB3718/mt in spot market and RMB3204/mt in forward market.

As the premium is still high, aluminum ingots import losses have widened again. Downstream consumption enterprises cannot import aluminum ingots as the market has a price but no sales. Recently, traders have a strong willingness to buy aluminum ingots and some cargo holders have a rising feeling of sitting on the sidelines. 

Edited by SHMET

Copper – Purchasing activity has improved slightly, with overall trading volumes being not big

Date Apr 13 2018 17:32:22Source:SHMET

Premiums for CIF in Shanghai stood at $65-$85, while that for shanghai bonded warehouse flatted at $70-$85. LME C-3m valued was $33.5C. SHFE Spot/LME 3M arb stayed steadily at around 7.42, with a spot import gain of RMB262/mt, whilst 3M SHFE/LME arb may have a loss of about RMB 16 /mt, with ratio of 7.44.

Current premium for B/L SX-EW copper is at about $65-$73/ton, while that of B/L common ER copper is at $70-$83/ton and that of Chilean ER copper is at around $85/ton. LME forward discount has narrowed slightly, buyers are active in purchasing. Sellers have more supply B/L offers, but there are few feedbacks from buyers. Some downstream buyers have a tight budget and also tight limits for issuing Letter of Credit, limiting the buyers’ purchasing power. The recent copper premium is basically stable, and buyers prefer a forward quotational period.

 

 

Edited by SHMET

【SHMET Analysis】Electrolytic aluminum: Lower costs restrict the rebound space of aluminum price

Date Apr 13 2018 11:51:12Source:SHMET

Strategy conclusions:

 

(1)    As aluminum prices rebound and production costs are further down, profits in domestic production of the electrolytic aluminum plant improved markedly, which will stimulate the production acceleration of aluminum plant in the second quarter, so as to suppress price rebound. However, it remains to be seen whether the aluminum plant will accelerate production under the current profit. After all, the current high stocks still need time to consume.

 

(2)    On the cost side, thermal coal and anode prices still have some room to fall, but the price of alumina has stabilized under the support of cost. The overall production cost of the aluminum plant can still be reduced slightly to 13,000-13,500 yuan/ton. The lower cost is the main constraint of the aluminum rebound.

 

(3)    The domestic social stocks fell by 53,000 tons in two weeks, purchasing power will be eased in the short term as the acceptance of the rising aluminum prices by the downstream has declined and stocks remained at high levels. Stocks will be stable or have a slight decline in the short term. However, from our balance sheet, the electrolytic aluminum shortage in the second quarter is about 700,000 tons, and the de-stocking phase continues. The spot will still fluctuate within a discount of 150-50 yuan/ton.

 

(4)    LME aluminum price has rebounded strongly with the support of fundamentals and news, making the current aluminum products export near breakeven line. In terms of SHFE and LME operation, suggestions are temporarily on the sidelines.

 

 

Fundamentals

 

(1)     Changes in production capacity

 

According to ALD’s data, the total output of electrolytic aluminum at the end of March is 43.598 million tons, an increase of 70,000 tons from February. Operating capacity in March was 36.437 million tons, an increase of 135,000 tons from February and a decrease of a million tons from last year. An increase of 135,000 tons on a sequential basis indicates that under the circumstances of low aluminum prices, new capacity production in Guangxi area has slowed down and the production resumption schedule of Yugang longquan , Zhongfu shiye and Jiaozuo wanfang in Henan area is also being delayed, which needs a rebound in aluminum prices to stimulate production. That is to say, current overcapacity pressure still exists, which will suppress the rebound of the aluminum prices.

 

 

(2)    Stocks

 

Last Wednesday, the domestic electrolytic aluminum stocks were 2.231 million tons, with a weekly decline being 12,000 tons. Driven by a restocking in downstream enterprises, domestic social stocks have decreased by 53,000 tons from the peak. However, as the aluminum price rebound and the stocks are high, the downstream is not eager to purchase in large quantities and stocks will be in stable or a small decline stage in the short term. From our balance sheet, it is estimated that the domestic electrolytic aluminum shortage will be 240,000 tons. Stocks enter a phase of de-stocking, which is still a strong support for aluminum price.

 

 

 

(3)    Foreign market

 

LME c-3M maintained at a discount of $20/ton. LME stocks have fallen slightly after a concentrated delivery to the warehouse, roughly stable at about 1.26 million tons. Foreign electrolytic aluminum backwardation quoted by Metal Bulletin: all regions are basically stable. Backwardation in the USA continue to fall slightly to $418.8/ton, that of Japanese MJP is stable at $123/ton and that in Rotterdam rose $2/ton to $102/ton.

 

 

2. Market structure

 

1Industrial chain profit

The picture below shows the profit distribution of aluminum industry chain in Henan province with relatively high cost. As the aluminum prices rebound and costs continue to move down, the profits of electrolytic aluminum enterprises are significantly improved. According to our simulation data, the total profit of the whole industry chain is around 915 yuan/tonne, of which the profit of aluminum plant is 407yuan/ton, the alumina plant profit is 233 yuan/ton, and that of the anode plant is 127 yuan/ton. Sub-items:

 

 

Electrolytic aluminum plants  

The production cost of electrolytic aluminum continue to move down: Qinghuangdao thermal coal spot price dropped 10 yuan/ton, resulting in a cost reduction of 46 yuan/ton, and the anode price dropped 300 yuan/ton, which reduced the cost by 150 yuan/ton. Currently, the overall production cost is 13,573 yuan/ton, while the price of electrolytic aluminum in Changjiang Nonferrous Metal increased by 340 yuan/tonn from last Friday, and the profit of aluminum plants have improved remarkably, with a profit of 407 yuan/ton. In the future, there will still be some reduction in the price of thermal coal and anode price, and the cost of electrolytic aluminum still has a certain reduction space, which will limit the rebound range of aluminum price.

 

Alumina plants   

As the price of caustic soda and bauxite continue to hold firm, domestic alumina price gradually stabilize under the cost support. However, due to the loss of earnings, the willingness of the aluminum oxide enterprises to resume production has been reduced, and they are all waiting for the pullback of bauxite price. On the whole, alumina will stabilize under the support of cost, but it is still difficult to rebound under pressure of supply. 

 

Accessories plants    

Weiqiao lowered the purchase price of the anode by 300 yuan/ton to 3600 yuan/ton, and the profit of the anode plants was further squeezed to around the cost line, which will stabilize in the short term. However, the anode oversupply starts to appear and the anode price will run under the cost line, so the price still has some room to fall. Other accessories price has not changed much.

 

 

(2)SHFE/LME arbitrage

 

The U.S. Trump administration has put Rusal, Rusal’s major shareholder En+ and Oleg Deripaska, president of Rusal, on the sanctions list. On the basis of strong fundamentals and low prices, coupled with the stimulus of the news, the price of LME aluminum quickly rose. And the domestic aluminum price is restricted by the fundamentals, with a small gain. Aluminum products exports have shifted from the pre-holiday loss of $90 / ton to the current break-even line. In the case of the current arb, it is not the right time to do cash and carry arbitrage or reverse cash and carry arbitrage. In terms of operation, the suggestion is to sit on the sidelines.

 

 

 

3. Position holding

 

Aluminum market fundamentals have not changed very much, and the aluminum is not a big concern for aluminum, with little change in position holdings.

 

4. Strategy

(1) As aluminum prices rebound and production costs are further down, profits in domestic production of the electrolytic aluminum plant improved markedly, which will stimulate the production acceleration of aluminum plant in the second quarter, so as to suppress price rebound. However, it remains to be seen whether the aluminum plant will accelerate production under the current profit. After all, the current high stocks still need time to consume.

 

(2) On the coast side, thermal coal and anode prices still have some room to fall, but the price of alumina has stabilized under the support of cost. The overall production cost of the aluminum plant can still be reduced slightly to 13,000-13,500 yuan/ton. The lower cost is the main constraint of the aluminum rebound.

 

(3) The domestic social inventories fell by 53,000 tons in two weeks, purchasing power will be eased in the short term as the acceptance of the rising aluminum prices by the downstream has declined and stocks remained at high levels. Stocks will be stable or have a slight decline in the short term. However, from our balance sheet, the electrolytic aluminum shortage in the second quarter is about 700,000 tons, and the de-stocking phase continues. The spot will still fluctuate within a discount of 150-50 yuan/ton.

 

(4) LME aluminum price has rebounded strongly with the support of fundamentals and news, making the current aluminum products export is near breakeven line. In terms of SHFE and LME operation, suggestions are temporarily on the sidelines.

 

 

 

Edited by SHMET

[SHMET Analysis]Lead price backed by low Inventory being stagnant while spot zinc premiums to grow

Date Apr 13 2018 08:43:29Source:SHMET

Abstract:


Lead: When unilateral prices are linked with the profits of the industry chain, the situation in the lead's off-season evolution basically fits in this pattern: Environmental constraints on secondary lead- Supply reduction - Inventory reduction - Higher lead price - Recovered profits - Supply increased - Lead price dropped. Considering the current low inventory, lead's price remains stagnant and is not expected to fall for the time being.


Zinc: According to the data released by some warehouses recently, it is believed that the consumption is in recovery from the previous period. Thus the decline in inventory can be sustained. Backwardation will continue to expand. The spot premium is expected to rebound. The overall unilateral market is in favor of longs.




China-US trade war has not been confirmed, which if happens may increase the cost of circulation for goods in part and directly lead to fluctuations of price parity. Impacts on the macro economy of both countries are minor. The recent trends of gold and domestic and foreign stock markets are stable, and there will be no systemic risk for the time being.


The indirect impact of this approach should be considered from the bottom up, through the perspective of the balance of internal and external balances of different commodities. For base metals, the supply and demand fundamentals of copper, nickel, lead and zinc are not affected.




     Analysis for domestic supply and demand of lead



     On supply side, the risen lead price recovers the margins of secondary lead, the circulation of which has been slightly increased in the recent market. Until 9th April, spreads of secondary and original lead are expanded till RMB175/t, a relatively high level since the beginning of 2018. Secondary lead has shifted from gaining profits to around break even over the recent two transaction days. This in part justifies the incremental production of some secondary lead makers through early-stage purchase of excessive waste battery and crude lead, which is also why inter-regional flows of waste battery and crude lead has increased sharply recently in Anhui province as we concerned.

     

      Taking into account the relatively large supply flexibility led by renewable profits, the actual production of secondary lead needs to be re-evaluated, which is largely dependent on the lead price level. If lead can reach the level of 19,000 yuan / ton, even if Taihe discontinued production in Anhui the output of secondary lead may still increase rather than decrease. Even if the lead price is at the current level, the amount of secondary lead will be much lower than the previously expected level of 20,000/month. Thus domestic lead will face seasonally piled-up stocks in the off-season from April to June.

     

     When unilateral prices are linked with the profits of the industry chain, the situation in the lead's off-season evolution basically fits in this pattern: Environmental constraints on secondary lead- Supply reduction - Inventory reduction - Higher lead price - Recovered profits - Supply increased - Lead price dropped. Considering the current low inventory, lead's price remains stagnant and is not expected to fall for the time being.



       Analysis of domestic market of Zinc

   

The current driver of zinc is also at the supply side. The output from March and April reflects that the smelter has experienced a certain reduction in production. The magnitude is less than last year. Considering that the zinc price is approximate to 24,500 yuan/ton, which if drops to 24,000 yuan/ton, there are big chances for the supply to continue contracting.


According to the data released by some warehouses recently, it is believed that the consumption is in recovery from the previous period. Thus the decline in inventory can be sustained. Backwardation will continue to expand. The spot premium is expected to rebound. The overall unilateral market is in favor of longs.


Based on the current import losses it is hard for imported zinc to flow in domestic market, which would pose little threat to the continuous increase of domestic premiums. Late-stage import P&L continuing to contract can be taken to monitor the exact time when spot Borrow gains profits.





 








 




Edited by SHMET

Nickel – premium is high, overall transaction being flat

Date Apr 12 2018 17:02:42Source:SHMET

With regards to NI FP, offers in Shanghai bonded zone keep standing at the range of $250-$280, so is premiums for CIF. The SHFE Spot/LME 3M was at 7.42 and that for 3M SHFE/LME 3M at 7.44. Russian Ni registered a loss of RMB2271 in spot (2%of import tax) and a loss of RMB2291 3M forward.


Premium for CIF Shanghai bill of lading for Russian nickel quoted by traders is at around $270 / ton. Premium for shanghai bonded warehouse offer is at around $280/ton.  Recent offer at port is not much, most of which are offer of forward cargoes. There are Individual traders who can provide designated shipment dates and designated ports for delivery, but with no inquiries due to a high premium. The overall market transactions are flat and cargo holders hold the cargoes at a high price, with actual transactions being limited and trading volumes being small. 

Edited by SHMET
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