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The aluminum industry will only start to work at the beginning of the 19th century


The  Fed raised interest rates in June, the second time this year, the US  economy continued to grow, and the job market performed strongly. Although  wage growth in May is still unsatisfactory and inflation has fallen,  Fed officials seem to be inclined to stick to their plans. The Fed also announced that it will begin to reduce the size of its public debt and other securities from this year. In fact, compared to raising interest rates, the Fed's contract will directly reduce the dollar flowing in the market. If  the base currency of 2.5 trillion US dollars is reduced in just a few  years, plus the multiplier effect, this "dollar reduction" will  undoubtedly lead to huge turmoil in the financial market. We  tend to; the Fed does not value the performance of economic data on the  issue of contraction. Even if the weak economic data in the future  delays further interest rate hikes, the Fed may continue to shrink. In short, the United States is completely bidding farewell to easing. In  addition, the central banks in Europe and Japan have successively  reported that they may end the easing. If the European and Japanese  central banks gradually recover liquidity, this will also have a major  impact on the global financial market. Given  that the Fed’s specific plan is ahead of market expectations, whether  the Fed will begin to reduce its balance sheet at its policy meeting in  September this year deserves special attention.

According to the latest data released by the People's Bank of China, China's M2 growth rate in May was 9.6%. This  is the historical mark that the M2 growth rate has fallen below 10% for  the first time since statistics were published in 1986. The  slowdown in M2 growth is mainly due to the financial system's reduction  of internal leverage, which is no doubt that the money has tightened  compared to the previous two-digit growth. In  the next two years, under the suppression of the Fed's tightening  monetary policy, China's monetary policy will continue to be stable and  tight. This is a negative for China's real estate and stock market. However, real estate transactions have been basically frozen. We  believe that the central bank's de-leverage is to make the money in the  market less and more expensive, to control the flow of funds to places  where the risk is too high, to prevent systemic risks. Although  management has introduced a series of strong policies, it shows that  the responsibility of the decision-making level exceeds market  expectations. However,  many pessimists in the market still doubt that even if the  decision-making layer wants to make these changes, and faces the current  tight market currency, the obstruction of too many interest groups, and  the rising production capacity and output, the clearing of the surplus  industry is even more difficult. At  present, both China and the United States hope to avoid a sharp  appreciation of the US dollar against the renminbi. This constitutes the  basis for the coordination and cooperation of exchange rate policies  between the two sides. For  a long time, China's basic system is not perfect, especially the stock  market is only for financing services. Failure to put the interests of  investors in the most important position is the biggest failure. In  the fall of this year, the "Nineteenth National Congress" meeting on  China's future political and economic trends, reform and compromise will  be an important turning point in China's political and economic  history. We  have no doubt that before the 19th National Congress, all "stable  words" take the lead. Preventing financial and debt from systemic risks  is the core task of the government. In particular, China's capital is strictly controlled and externally appreciated, and the internal  depreciation pattern is more obvious. This has made domestic inflation factors support the formation of basic metals. In the off-season consumption in the third quarter, the probability of oscillation in the basic metal range is still large.

At  present, the domestic alumina spot market transaction is light, and the  alumina enterprise inventory and electrolytic aluminum raw material  inventory are at a low level. From the transaction situation, most of the contracts are long-term contracts. The comprehensive cost of alumina is basically around 2,320 yuan / ton. Due  to the high operating rate of electrolytic aluminum and the rebound in  alumina prices, the alumina operating rate increased. The alumina output  in May was 5.745 million tons, which remained at a high level. However,  due to environmental factors and the expected reduction in electrolytic  aluminum production, alumina prices have always been suppressed in this  area, and the upper space will also be limited. The  current alumina price operation range is 2500-2700 yuan / ton, and the  mainstream transaction price is about 2620 yuan / ton. We  believe that with the passage of time, especially the gradual approach  of the 19th National Congress, environmental protection and electrolytic  aluminum production are expected to increase, domestic alumina prices  will be affected by these negative effects, and the selling pressure  above the price will gradually increase. In short, we are still cautiously empty-minded about the short-term trend of alumina. It is expected that the domestic alumina price trend in July will be a weak range.

At  present, the supply-side reform of the aluminum market is still facing  uncertainty. The actual production reduction is far from the theoretical  reduction of production scale. The short-term huge inventory and tight  liquidity still bring pressure to the aluminum market. Recently,  the "soft constraints" suddenly proposed by President Ogawa should  cause us to pay attention to the reform trend of decision-making. This  shows that the management has a high degree of vigilance against the  central government's finances for local governments and enterprises with  high debt risk. This  also highlights the strong confidence of the central government in the  future after the 19th National Congress on the belief in reform, and may  also imply that we should have a new understanding of capacity and  de-leverage. We  believe that the domestic aluminum market is the policy city in the  end, Weiqiao's production of 250,000 tons will not end, perhaps just  started. Baichuan  data shows that the current domestic electrolytic aluminum cost is  13,200 yuan / ton, and the monthly output reaches 3.182 million tons. Production has hit record highs, showing that the game between the local and the central is still in progress. The  third quarter will be the period of publicity of illegal production  capacity in various regions, and the market will pay more attention to  it. At the same time, the publicity and implementation of illegal  production capacity in Xinjiang will still plague the market. In  the long run, there are no shortcuts to reform. It is risky to try to  reduce leverage through the use of leverage by residents. Only through  structural state-owned enterprise reform is the main way to solve  problems. The recent reduction in alumina production has pushed up the cost of primary aluminum production. To  take care of themselves, China has asked 28 cities to cut aluminum  production during the winter heating period, while China's aluminum  production accounts for more than 55% of global production. Environmental  pressures and expectations that some electrolytic aluminum will cut  production will weaken the selling pressure of the empty side. From  the actual situation of the market, the domestic aluminum stocks  rebounded less in the off-season, especially the number of large trucks  on the road showed a significant increase, which may indicate that  consumption and intensity exceeded people's expectations. We  believe that; with the gradual approach of the 19th National Congress,  all "stable words" take the lead, and it is the core task of the  government to prevent financial risks and debts from appearing  systematic risks. Under  the interaction of de-capacity, environmental protection pressure and  real domestic inflation expectations (profit), as well as the  corresponding real estate control cycle and liquidity tightening (bad  interest), the domestic aluminum market will still show a range of  fluctuations.

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