This year's high temperature in my country has reached the highest level since complete meteorological observation records were available in 1961 in terms of intensity, breadth, persistence, and extremeness. Electricity load in many provinces in China also hit a record high, followed by power cuts. Cut production. As of August 26, the high temperature power cut has caused the production of 1.03 million tons of electrolytic aluminum production capacity in Sichuan and Chongqing to stop. At the same time, overseas production has also been further reduced under the dual pressure of high temperature and rising natural gas prices. Therefore, the market's previous concerns about oversupply have eased, and supply-side disturbances have brought obvious short-term support to aluminum prices.

High temperature affects the production of domestic electrolytic aluminum plants

Under the action of the subtropical high, the rainfall in the Yangtze River Basin in July was 40% to 50% lower than that of the same period of the previous year, superimposing the long-term fine and hot weather, resulting in the phenomenon of "reverse dry season during the flood season". Sichuan launched a first-level emergency response for energy security, and the end of power curtailment was extended from August 19 to August 25. Affected by this, the production capacity of electrolytic aluminum plants has expanded rapidly. According to statistics, at the end of June in Sichuan Province, the operating capacity of electrolytic aluminum was 1 million tons. As of August 19, production has been reduced by 400,000 tons due to power outages and emergencies. Up to now, all electrolytic aluminum plants in Sichuan Province have been shut down. In addition, some enterprises in Chongqing area began to shut down and repair electrolyzers, reducing production by about 30,000 tons. On August 30, all large industries and general industries and commerce in Sichuan resumed normal electricity consumption. The aluminum processing industry with a certain profit has begun to resume production and the speed is relatively fast, but the high energy-consuming industry such as electrolytic aluminum is the last link of the resumption of production.

Overseas production cuts widen but within expectations

Since June, overseas production cuts due to strikes and high energy prices have occurred repeatedly. On June 27, Century Aluminum's smelter in Hawesville, Kentucky, shut down due to high energy costs, involving a capacity of 170,000 tons. On July 2, Alcoa's smelter in Warrick, Indiana, cut output by 162,000 tons due to a labor shortage. On August 17, according to foreign media news, due to high electricity prices and lack of due support from the state, the Slovakian aluminum company Slovalco will stop aluminum production from September. On August 22, Hydro's Sunndal aluminum plant in Norway and Alcoa's aluminum plant started a strike to stop production by 20% due to labor disputes, but resumed normal operations on August 25, with a small overall impact. On August 25, a spokesman for Talum, Slovenia, said that it is considering further reducing the current 50% operating capacity to 20%. Also due to energy costs, on August 30, Alcoa said that its Lista aluminum smelter in Norway would reduce production by 31,000 tons within two weeks. German aluminium smelter Speira will decide in September whether to cut production by half, currently running 140,000 tonnes/year.

Overall, the production cuts in Europe have been within expectations for the past two months. The European electrolytic aluminum production capacity is scattered, and the total electrolytic aluminum production capacity of the three Nordic countries, Norway, Iceland and Sweden, where electricity prices are relatively low, accounts for 47% of the total electrolytic aluminum production capacity in Europe (excluding Russia), and the probability of production reduction is not large. The smelters in the Netherlands, Montenegro and Spain have all stopped production in March this year, and the rest are likely to continue to cut production in the United Kingdom, Germany, France, Slovakia, Slovenia and Romania. Previously, the market expected a reduction of 490,000 tons of electrolytic aluminum production, but recently Slovakia, Slovenia and Germany have reduced production by 147,000 tons, which has not exceeded expectations. If electricity prices remain high, Europe (except Russia) has the possibility of reducing production of about 420,000 tons of electrolytic aluminum.

Global resumption of production and new production capacity

Although production cuts have occurred one after another, the resumption of production and new production capacity of electrolytic aluminum at home and abroad are still heavy. This year, the domestic electrolytic aluminum can resume production capacity of 3.862 million tons. At present, 2.817 million tons have been resumed, and 1.045 million tons are to be resumed. In terms of production, the potential production capacity this year is 2.6 million tons. At present, 1.66 million tons have been put into production, and 965,000 tons are to be put into production. Therefore, it is expected that there will be 2.01 million tons of additional production capacity this year, mainly in Guangxi, Inner Mongolia, Gansu, Yunnan and other regions. Part of the production has been carried out in an orderly manner. In the second half of the year, there are plans to resume production and to be put into production of electrolytic aluminum overseas, mainly in Brazil, Canada, Indonesia and Iran. At present, 258,000 tons of electrolytic aluminum have been resumed and put into production, and 1.18 million tons are to be put into production. On the whole, although the recent concentrated production reduction has alleviated the pessimistic expectation of oversupply of electrolytic aluminum, in the medium and long term, the production capacity of electrolytic aluminum this year is still higher than that of previous years, and it is in a period of capacity expansion.

Based on the above analysis, the current non-ferrous metal prices are in the stage of consolidation. Before the news of further interest rate hikes by the Federal Reserve, the aluminum price will fluctuate widely around the average cost line of 17,800 yuan/ton. Although domestic production cuts may lead to a decline in short-term electrolytic aluminum production, and the market's poor supply expectations will support aluminum prices, considering that the total output of newly commissioned projects is only a high-level deceleration, rather than a reversal of the trend, and the operating rate of downstream enterprises will be affected. Therefore, it remains to be seen to what extent the effect of the traditional peak season "Golden Nine Silver Ten" can be exerted. Therefore, although it is difficult for aluminum prices to fall sharply in the short term, the upward space is limited, and the follow-up will maintain a strong and volatile trend. In the medium and long term, if there is no significant increase in the consumption side, the aluminum price will still maintain a bearish thinking, and the support level can be slightly raised compared to before.