Part I Event Review
Since the end of last year, the situation between Russia and Ukraine began to escalate, recently, the two sides began to appear to scuffle things, although the market analysis of Russia, Ukraine and Europe are not really expanding the will of the war, but the United Kingdom and the United States in the back to fan the flames, but also make the state of affairs has a certain degree of uncertainty, and the current Western countries began to sanction Russia in the financial sector, does not exclude the late in other areas of sanctions, the market began to worry about the Russian aluminum In April 2018, the U.S. sanctioned a group of Russian oligarch businessmen on the grounds of Russia’s alleged interference in the U.S. election, including businessman Deripaska and the three companies under his control, including Rusal, En+ Group, and EuroSibEnergy. JSC EuroSibEnergo, whether to cooperate with Trump’s trade war, to sanction the global steel and aluminum industry, to protect the interests of domestic steel and aluminum producers, or to curb Russia, to crack down on businessmen who are closer to Putin, in short, to have an impact on the supply of aluminum. After the incident, LME aluminum prices rose sharply in succession, from a minimum of $ 1977 / ton to $ 2718 / ton, or 37.48%, after the U.S. Treasury Department postponed the time of sanctions, and claimed that as long as Delhi Pasha gave up control of Rusal, the sanctions against Rusal could be lifted, followed by the postponement of sanctions time incessantly, and finally the sanctions against Rusal were officially lifted in January 2019.
Risk tip: high prices on the demand side has produced inhibiting effect, beware of excessive speculation.
Part II Review vs. Fundamentals
Russian Aluminum Production
Russian Aluminum 2021 annual aluminum production was 3.764 million tons, up 0.2% year-on-year. Total alumina production totaled 8.304 million tons, up 1.5% year-on-year, with operations in Russia accounting for 36% of total alumina production. Total bauxite production was 15.031 million tons, an increase of 1.3% year-on-year. According to Galaxy futures estimates, the global electrolytic aluminum production in 2021 is about 67.364 million tons, an increase of about 3.09% year-on-year, Russia’s electrolytic aluminum production accounted for 5.59% of global electrolytic aluminum production, Rusal 2021 low to early 2022 plans to newly put into production 428,000 tons of hydropower aluminum, if subject to sanctions, the new production capacity will also be affected.
Sanctions Background
The direct reason for the sanctions against Rusal in 2018 is Russia’s alleged interference in the U.S. election, the U.S. Treasury Department initiated sanctions against some business oligarchs, including the actual controller of Rusal, Delhi Paska; secondly, Trump came to power and started to sanction a number of regions and countries from the steel and aluminum tariffs, from the 232 investigation report in early January, to the 10% steel and aluminum tariffs imposed in March, and then to the 301 report issued late The whole purpose of the trade war is actually to safeguard the interests of steel and aluminum mills in the United States (from the Alcoa stock price to see very beneficial), to encourage the return of the U.S. manufacturing industry. early 2022, the current situation in Ukraine due to geographical disputes involving the interests of all parties, the West sanctions Russia’s financial, but has not yet sanctioned entity enterprises, the current situation is mainly a market concern. But according to many speculations, the current sanctions entity enterprises, especially the probability of Russian aluminum is relatively slim.
Sanction means
From the layout of Rusal’s factories, at present, basically all of Rusal’s electrolytic aluminum is in Russia, direct sanctions do not affect the production of Russian electrolytic aluminum, as the market speculation, Rusal aluminum ingots will flow into China, China’s primary aluminum processing products will flow into Europe and other regions originally exported by Rusal through exports again, we can see that exports in 2018 in the economic downturn, but at the same time is a large increase (Figure However, only 36% of Russia’s alumina enterprises are in the country, and most of the alumina enterprises and mines are distributed overseas. Sanctioning Rusal means that this will sanction all the enterprises that have business dealings with Rusal, so the whole logistics, production and finance outside the country will be disturbed, which is also a factor of the big rise of alumina in 2018. can be provided through China, but the whole market supply of raw materials will be reduced, and the production cost will be greatly increased.
Comparison of inventory situation
Before the Russian aluminum sanctions in April 2018, the LME inventory market 1.41 million tons, while the current LME inventory 840,000 tons, only 59% of the time; domestic electrolytic aluminum inventory at that time was 2.258 million tons, while the current 1.102 million tons, only 48.8% of the time, of course, there are also factors of 2017-2018 social inventory overall high, but from the perspective of inventory, the supply side However, from the perspective of inventory, the supply side is currently in a tight situation, and the market will be in a state of flux at the slightest wind.
Comparison of industry supply and demand pattern
In 2017, China experienced supply-side reform and emergency production reduction in heavy pollution weather in the autumn and winter heating season, and the whole supply was greatly disturbed. 2017 domestic supply-side reform, the suspension of production capacity of about 3.76 million tons, the postponement of production capacity under construction involving 2.8 million tons, can be said to be quite influential, followed by heating season production capacity restrictions involving 893,000 tons, so the beginning of 2018, due to high costs, aluminum prices by high Inventory, trade war hit, supply and demand are disturbed, the overall operating capacity is at a low level; 2021, China is affected by power shortage and energy consumption double control, during which some aluminum plant accidents occurred, the lowest operating capacity in November approached 37 million tons, while the operating capacity at the beginning of 2021 was about 39.5 million tons, the total amount of 2.5 million tons less than the ring; European region is affected by the energy crisis, the The European region was affected by the energy crisis and production was halted by more than 800,000 tons, while other regions slightly reduced production.
In 2018, the macro economy is in a downward phase, after experiencing a brief boom in the real estate economy in 15-17 years, in 2018, whether from the manufacturing PMI index, or from a number of macroeconomic indicators, are in a year of topping back down, the whole economy in 2019 appeared a more substantial downside; looking back to 2022, after experiencing the global release of water to stimulate the economy after the epidemic in 2020 economy after the rapid economic recovery, the economy peaked back down in 2021, the prosperity of the real estate economy was hit again, the disturbance of the supply side made a great imbalance between supply and demand in the short term, the peak of demand met the disturbance of the supply side, the gap made the price keep going up, so the market on the probability of sanctions against Rusal wind, the whole macroeconomic view, in 2022, the Federal Reserve interest rate hike cycle began to suppress Inflation, the negative impact on the economy, China’s curb on real estate despite the beginning of the adjustment policy began to stimulate, but the inertia of the cycle and the real estate enterprise’s own problems will make the industry’s development phase into the dilemma, the whole big demand is in the weakening, history is how ever similar!
Analysis of sanctions against Rusal
On January 28, 2019, the U.S. Treasury Department announced on Sunday local time that it officially lifted sanctions on three companies related to Russian tycoon Oleg Deripaska, including Rusal, En+ Group and JSC EuroSibEnergo. In fact, the sanctions only had a greater impact at the beginning, when the market Emotional shock and concern about the lack of supply, from the announcement of the extension of sanctions on April 19, followed by each extension of sanctions and the game of its own interests, will lead to a slowdown in the marginal influence of the market. And the current global aluminum resources are relatively tight, especially the United States, Europe and other Western countries under the background of high aluminum lift (Figure 11), sanctions will lead to their own interests themselves suffer great losses, for the control of prices and inflation is more unfavorable, international relations itself is also a relationship of interest, the current tension has made the European region enjoy high energy costs, so along with the Russian undercard release, the later is more likely to return to the negotiating table.
Post-market aluminum supply and demand analysis
Demand along with the economy has obvious cyclicality, the supply side due to policy attributes led to by the price elasticity becomes weaker, so in the long run, the variable still lies in the demand side.
At present, the long-term supply is expected to increase, and the increment of supply in 2022 mainly comes from the resumption of domestic electrolytic aluminum enterprises and part of the new production, including the replenishment of recycled aluminum; 2023 and later, more from the overseas production, especially the part of Chinese enterprises going out, 2022 domestic capacity of new investment and resumption of production as follows.
The demand side of aluminum, the current demand from the field of new energy bright performance, and along with overseas tension, export demand will have a certain amount of time to last, but the real estate industry due to the existence of inertia, and will not bring the actual demand because of the short-term emotional high, the cycle down will have a certain continuation; aluminum low inventory, the first half of the seasonal peak season will lead to aluminum prices easy to rise, but the high price itself will also inhibit the growth of demand, to achieve a rebalance between supply and demand, the October 2021 market after all, also in memory, so compared to the current emotional hype, it is more important to pay attention to the real demand situation.
Post time: Feb-25-2022