□ .K.i.r.t.a.n. .M.e.h.t.a./.D.a.v.i.d. .P.l.e.m.i.n.g./.J.i.g.a.r. .M.i.s.t.r.y./.J.e.f.f. .Y.u.a.n./.D.e.r.r.y.n. .M.a.a.d.e./.A.n.s.h.u.l. .G.a.d.i.a　 .汇.丰.银.行.(.中.国.).有.限.公.司

Aluminium demand growth in China and production cuts dueto new environmental policy is positive …

COMMODITIES UNEARTHED：ALUMINIUM：RUNNING AHEAD

时间：2017年04月19日 16:08:21 中财网

Limited long-term price upside across the entire chain: China’s drive to increaseself-sufficiency has resulted in surplus domestic capacity in aluminium and aluminaand has assisted in curtailing bauxite import growth. In the medium term, we seerobust supply for all three commodities. For alumina and bauxite, China is the pricemaker. Cost competitive new aluminium capacity in China is likely to limit potentialupside to aluminium prices.
Merchant premia have risen outside China (US Mid-West premium up USD100/t toUSD225/t over past six months) and have started attracting higher imports of existingaluminium stocks into deficit regions. With the rise in the production run rate and afavourable SHFE/LME arbitrage margin on semis, we see an increase in aluminiumproduct exports from China in Q2.
Aluminium price running ahead: The aluminium price has risen 12% y-t-d tocUSD1,900/t on the back of winter production cuts in China and the new air pollutionpolicy announced in Feb 2017. While supply constraints will improve the marketbalance, China will need to work through closures of high-cost capacity as supplyramps-up. With a stronger outlook for demand and cost support, we now see 8.0mt(6.0mt previously) of net supply addition in China over 2017e-21e. As we expect themarket surplus to increase in 2017e (even after factoring in production cuts), pricesare likely to revert to the cost support level of marginal supply of USD1,750-1,800/t.
Adjusting long-term prices: We cut ourLT aluminium price by 2% to USD2,100/tbased on the incentive price for new supply. On the other hand, both alumina andbauxite long-term pricing are based upon the marginal cost of existing supply; weraise the former by 7% to USD300/t (China marginal cost), and cut the latter by 13%to USD50/t (reflecting the move from an incentive price to marginal cost of supplywith increased options of new supply).
During 2018e/19e, we expect the aluminium price to remain at a cost support leveluntil China closes surplus capacity.
… however, we still expect a market surplus to 2019e(unchanged) as net supply additions in China are expected,thus price is expected to retrace to cost support levels
Adjusting long-term prices (2017 terms): -2% for aluminium(USD2,100/t), +7% for alumina (USD300/t) and -13% forbauxite USD50/t (USD56/t)
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