In depth analysis of aluminum industry: high cost operation, steady growth of new energy vehicles and photovoltaic aluminum demand

1. Aluminum

Aluminum is a chemical element with the symbol Al, atomic number 13, density lower than other common metals, and weight about one-third of steel or copper. Soft, nonmagnetic and ductile, it is the twelfth most common element in the universe. Aluminum is the third most abundant element on the earth, which mainly exists in the rocks of the earth's crust and is second only to oxygen and silicon. In terms of quantity or value, aluminum is used more than any other metal except iron, which is important in all fields. Aluminum is mostly used for transportation (automobiles, airplanes, trucks, railcars, ships, etc.), packaging (cans, foils, etc.), construction (windows, doors, wallboards, etc.), durable consumer goods (appliances, cooking utensils, etc.), power transmission lines, and machinery. Recycling aluminum from scrap (recycled aluminum) has become an important part of aluminum industry. The sources of recycled aluminum include automobiles, doors and windows, electrical appliances, aluminum cans and other products. The aluminum industry chain includes bauxite mining, alumina refining, metal aluminum smelting, Aluminum Alloy production and aluminum processing. The processing methods of aluminum include rolling, extrusion, drawing, forging, casting, etc.

2. Cost side

2.1. Cost of electrolytic aluminum: mainly aluminum oxide, electric power and prebaked anode

The cost of electrolytic aluminum is mainly composed of aluminum oxide, electric power and carbon anode, accounting for 39%, 37% and 12% respectively, and the total proportion of the three items is up to 88%.

Influenced by high energy prices in Europe, Russia Ukraine conflict, epidemic situation and other factors, in early 2022, some overseas electrolytic aluminum enterprises reduced production, resulting in a shortage of supply. The price and gross profit of electrolytic aluminum increased rapidly, and the gross profit of electrolytic aluminum once reached 5752.81 yuan/ton. Then, with the accelerated pace of interest rate increase by the Federal Reserve and the gradual recovery of electrolytic aluminum capacity, the price and gross profit gradually fell back, and the gross profit was only 13.88 yuan/ton when it was the lowest. As of September 16, 2022, the gross profit of electrolytic aluminum had recovered to 1092.88 yuan/ton. Aluminum enterprises that purchase raw materials such as coal and aluminum oxide mainly from surrounding enterprises will have a great impact on their own gross profits under the sharp fluctuations in the prices of coal and aluminum oxide.

Yunnan and Xinjiang benefit from abundant hydropower resources and coal resources respectively, and local aluminum enterprises generally have certain advantages in the cost of electrolytic aluminum. From the perspective of the trend of electrolytic aluminum cost in various regions in China, by the end of February 2022, the regions where the cost of electrolytic aluminum is from high to low are Fujian, Chongqing, Guangxi, Liaoning, Guizhou, Shanxi, Hubei, Sichuan, Shandong, Henan, Ningxia, Qinghai, Shaanxi, Inner Mongolia, Gansu, Yunnan and Xinjiang.

From December 2015 to February 2022, the growth rate of electrolytic aluminum cost in China ranked from high to low in Chongqing (71%), Guangxi (64%), Shaanxi (63%), Shandong (63%), Hubei (62%), Liaoning (60%), Xinjiang (53%), Fujian (49%), Guizhou (46%), Shanxi (46%), Sichuan (45%), Inner Mongolia (41%), Ningxia (40%), Gansu (37%), Qinghai (36%), Henan (36%) Yunnan (21%), with an average growth rate of 49%.

The aluminum prices of LME and SHFE gradually fell back from high levels due to the impact of the Federal Reserve's continued sharp interest rate increase, but the aluminum inventories of LME and SHFE remained low. The aluminum inventories of LME hit a new low in recent years, which may provide some support for aluminum prices.

2.2. Alumina: prices remain stable in the near future

The cost of alumina is mainly composed of bauxite, liquid caustic soda, lime, energy cost and other costs, of which bauxite accounts for more than 40%, followed by liquid caustic soda and energy cost. The production methods of aluminum oxide mainly include alkali method, acid method, acid base combination method and thermal method. Most of the industrial production methods of aluminum oxide in China belong to alkali method. The alkali method is divided into Bayer method, sintering method and Bayer sintering combination method. Bayer method and sintering method have their own advantages and disadvantages and scope of application. When the production scale of enterprises is large, Bayer sintering combination method is generally used. The cost of alumina mainly includes bauxite, caustic soda, limestone, energy and labor costs.

Except for individual emergencies, the price trend of alumina in all regions of China is basically the same, with a price difference of tens to 200 yuan. In Shanxi, Guangxi and Henan, alumina with Al2O3 ≥ 98.5% is mainly quoted, while Sanmenxia, Luliang, Binzhou, Baise and Guiyang are mainly quoted with first-class alumina.

From the perspective of alumina gross profit trend, since 2017, the fluctuation of alumina gross profit of aluminum enterprises in China has basically kept consistent with the alumina price trend, with the fluctuation range of - 400 yuan/ton to 1400 yuan/ton. Affected by the production reduction of the epidemic situation and the production restriction of the Winter Olympics, the alumina profit once reached 655 yuan/ton in February 2022. Later, with the recovery of local production capacity supply, the alumina price and gross profit continued to fall. As of September 16, 2022, the alumina gross profit in China had dropped to 70.58 yuan/ton.

2.2.1 Bauxite: narrow fluctuation of average import unit price

In recent years, the average unit price of China's bauxite imports has maintained a narrow range of shocks. According to the trend chart of the average unit price of bauxite imports in China, the price trend fluctuated greatly from 2003 to 2009, and slightly from 2010 to 2020, ranging from 40 to 60 dollars.

Bauxite is transported from the mining area to the manufacturer by road or railway after mining. Imported bauxite is transported to each port first and then to each manufacturer. The manufacturers close to the mining area or port have certain cost advantages. From the price trend of bauxite in 2022, Al2O3 ≥ 60%; SiO2≤10%; Al/Si: the price of bauxite with specification 6.0 to Guangxi is the lowest, with Al2O3 ≥ 60%; SiO2≤11%; Al/Si: The price of bauxite of 5.5 specifications to Shanxi is the highest.

2.2.2. Caustic soda: the cost in the near future is higher than that in previous years

Recently, the cost of caustic soda for alumina refining has increased. From 2007 to 2021, the overall trend of the monthly output of caustic soda continued to rise, and the price fluctuated greatly, ranging from 1900 to 6000 yuan. Since July 2021, the price of caustic soda has fluctuated widely between 2000 and 6000 yuan/ton, but the overall average price has increased compared with previous years.

2.3. Pre baked anode: the price breaks the historical high

The price trend of pre baked anode in all regions of China is basically the same. Affected by the high price of raw materials such as petroleum coke and coal tar pitch, the increase in downstream demand and epidemic situation, the price of pre baked anode has risen all the way from 2700 yuan/ton in April 2020. As of August 31, 2022, the domestic price has reached 7548 yuan/ton, slightly falling back from the historical high but still in the high price range.

The output of prebaked anode in China has remained stable in recent years, with an annual output of about 18 million tons. In terms of regions, China's pre baked anode output is mainly concentrated in Shandong, Xinjiang, Inner Mongolia and Henan. In 2021, the output will be 6.565 million tons, 2.287 million tons, 1.791 million tons and 1.18 million tons respectively, accounting for 56%, 19%, 15% and 10% respectively. Among them, the output of pre baked anode in Henan and Xinjiang has shown a downward trend in recent years, while the output of pre baked anode in Inner Mongolia and Shandong has shown an upward trend.

2.4. Power: There is still much room for the transformation of the power consumption structure of China's electrolytic aluminum industry

From the perspective of the power structure and energy consumption of the world electrolytic aluminum industry in 2021, the power structure of the world electrolytic aluminum industry is 57% thermal power, 31% hydropower, 10% gas electricity, 1% nuclear power and 1% other renewable energy. Aluminum enterprises in Asia, Oceania and Africa are mainly engaged in thermal power production, accounting for 94%, 58% and 59% respectively; Aluminum enterprises in Europe, North America and South America mainly produce hydropower, accounting for 93%, 95% and 82% respectively; Aluminum enterprises in GCC member countries are special, mainly producing electrolytic aluminum from natural gas power generation, accounting for 99%.

At this stage, the proportion of hydropower in the electricity consumption structure of China's electrolytic aluminum industry is increasing. According to the statistics of Antaike, in the electricity consumption mode of China's electrolytic aluminum industry in 2019, thermal power accounts for 86% (including 65% of self provided power and 21% of grid power), hydropower accounts for 10%, wind power accounts for 2%, and solar energy and nuclear power account for 1%. On October 21, 2021, the National Development and Reform Commission and other departments issued the Several Opinions on Strict Energy Efficiency Constraints and Promoting Energy Conservation and Carbon Reduction in Key Fields and the Action Plan for Strict Energy Efficiency Constraints and Promoting Energy Conservation and Carbon Reduction in Key Industries of Metallurgy and Building Materials (2021-2025), pointing out that the implementation should be carried out step by step and orderly, focusing on energy conservation and carbon reduction in key industries, and vigorously promoting steel, electrolytic aluminum, cement The green and low-carbon transformation of key industries such as flat glass ensures that the carbon peak goal is achieved on schedule. By 2025, through the implementation of energy conservation and carbon reduction actions, the proportion of energy efficiency of steel, electrolytic aluminum, cement, flat glass and other industries reaching the benchmark level will exceed 30%. By the end of 2021, the proportion of thermal power in China's electrolytic aluminum industry is 82%, and the proportion of hydropower has increased to 16%. In the future, with the accelerated process of capacity replacement in the electrolytic aluminum industry, the proportion of thermal power in the power structure will further decline, and the proportion of green capacity such as hydropower will further increase. High power cost operation. According to SMM statistics, in August 2022, the weighted average electricity price of the domestic electrolytic aluminum industry will be 0.45 yuan/kWh, with a month on month increase of 0.018 yuan/kWh. Among them, the cost of thermal power will be high and the cost of hydropower will be increased; In August, the power cost of Xinjiang, Yunnan, Shandong and Henan accounted for 22%, 34%, 39% and 41% of the electrolytic aluminum cost respectively. With the arrival of the coal peak season and Yunnan dry season, it is expected that the power cost of domestic electrolytic aluminum will remain high.

The total coal reserves in Shanxi and Shaanxi accounted for nearly half of the total. According to the statistics of the Ministry of Natural Resources, by the end of 2020, China's coal reserve is 162.288 billion tons, of which Shanxi, Shaanxi, Inner Mongolia, Xinjiang and Guizhou are rich in coal resources, with the reserve of 50.725 billion tons, 29.39 billion tons, 19.447 billion tons, 19.014 billion tons and 9.135 billion tons respectively. The local aluminum enterprises have certain advantages in thermal power costs. The coal resources in Beijing, Guangxi, Zhejiang, Tibet, Hubei, Guangdong and other regions are less than 100 million tons.

As the largest amount of carbon dioxide emissions in China's energy consumption is coal, in the context of the "dual carbon" policy, the requirements for the transformation of the electrolytic aluminum industry will be higher. In 2018, China's carbon emissions from coal consumption were 7.637 billion tons (79.79%), oil consumption 1.375 billion tons (14.37%), natural gas consumption 526 million tons (5.50%), and other energy consumption 33 million tons (0.34%). In 2020, the carbon dioxide emissions of China's electrolytic aluminum industry will be about 420 million tons, accounting for 84% and 64% of the emissions of aluminum industry and nonferrous metal industry respectively.

Carbon emissions in the world's electrolytic aluminum industry are mainly concentrated in the electrolysis sector. According to IAI statistics, in 2018, the carbon emissions in the electrolysis sector of the global electrolytic aluminum production reached 823 million tons of carbon dioxide equivalent, and the carbon emissions in the refining, anode production, casting and mining sectors were 171, 32, 6 and 3 million tons of carbon dioxide equivalent respectively. The carbon emissions of continuous production, recycling and scrap remelting are 29, 19 and 11 million tons of carbon dioxide equivalent respectively.

The Action Plan for Reaching the Carbon Peak by 2030 points out that to achieve the goal of carbon peak and carbon neutralization, we should adhere to the working principle of "national overall planning, saving priority, two wheel drive, internal and external smooth, and risk prevention"; Put forward five major objectives, including building a green and low-carbon circular economic development system, improving energy utilization efficiency, increasing the proportion of non fossil energy consumption, reducing carbon dioxide emissions, and improving the carbon sink capacity of the ecosystem, and put forward 37 key tasks in 11 aspects. Most of them involve high energy consuming industries such as electric power, electrolytic aluminum and new energy industries.

In the process of electrolytic aluminum industry transforming from high-speed development to high-quality development, the transformation of power cost is faced with both challenges and opportunities. On July 16, 2022, the first anniversary of the launch of the national carbon market. According to the statistics of Shanghai Environmental Energy Exchange, the national carbon market will operate for 52 weeks and 242 trading days from July 16, 2021 to July 15, 2022, and the cumulative number of enterprises participating in the trading will exceed more than half of the total number of key emission units. The cumulative trading volume of carbon emission quota (CEA) is 194 million tons, and the cumulative trading amount is 8.492 billion yuan. Among them, the trading volume of the listing agreement was 32.5928 million tons, with a turnover of 1.556 billion yuan; The volume of block agreement transactions was 161 million tons, with a turnover of 6.936 billion yuan. In terms of the industries covered by the carbon market, it was only included in the power industry at the initial stage. From the standard of included enterprises, most of them were thermal power generation enterprises, and their carbon emission quota was the carbon dioxide emission quota generated by power generation units owned by power generation enterprises, including direct carbon dioxide emissions generated by fossil fuel consumption and indirect carbon dioxide emissions generated by net purchase of electricity. According to the overall design of the national carbon market, there are 8 high energy consumption industries included in the national carbon market, including power, petrochemical, chemical, building materials, steel, nonferrous metals, paper making and civil aviation. On August 19, the National Development and Reform Commission, the National Bureau of Statistics and the Ministry of Ecological Environment issued the Notice on Accelerating the Establishment of a Unified and Standardized Carbon Emission Statistical Accounting System. The Notice proposes that by 2023, a department cooperation mechanism with clear responsibilities, clear division of labor and smooth connection will be basically established, the relevant statistical basis will be further strengthened, the carbon emission statistics and accounting work of various industries will be carried out steadily, the carbon emission data will significantly enhance its support for carbon peak carbon neutralization work, and a unified and standardized carbon emission statistics and accounting system will be initially established; By 2025, the unified and standardized carbon emission statistical accounting system will be further improved, the carbon emission statistical basis will be more solid, the accounting method will be more scientific, the technical means will be more advanced, and the data quality will be comprehensively improved, providing comprehensive, scientific and reliable data support for carbon peak carbon neutralization. Although the transaction activity of the national carbon trading market is not very active at present, drawing on the development history of the carbon emission trading system of the European Union and other countries, more high energy consuming industries will be included in the national carbon market during the period of steady development of the national carbon market and the transition from local pilot market to the national carbon market. Funds will be gradually introduced to enterprises with high emission reduction and efficiency and strong energy transformation capability through the resource allocation function of the carbon market, To realize the stable operation of the carbon market and the green and sustainable development of enterprises, electrolytic aluminum enterprises with strong emission reduction capacity and green and environmental protection are expected to benefit from it in the future.

2.5 Recycled aluminum: the output of recycled aluminum in China increased significantly from 2006 to 2019

At present, the increment of global recycled aluminum production mainly comes from China. The production of recycled aluminum mainly comes from aluminum alloy or aluminum metal obtained from waste aluminum, waste aluminum alloy materials or aluminum containing wastes through re melting and refining, mainly in the form of aluminum alloy. Compared with the traditional production of primary aluminum, each ton of recycled aluminum can save 3.4 tons of standard coal, 22 cubic meters of water and 20 tons of solid waste. In 2006, the global output of recycled aluminum was 9.09 million tons, and in 2019, the output was 16.663 million tons. The main increment was basically from China. The output of recycled aluminum in China increased from 665000 tons in 2006 to 6.904 million tons in 2019, basically showing an increasing trend year by year. Compared with other countries, the growth rate was obvious, and the growth rate slowed down gradually in 2017-2019. Recycled aluminum is an important part of the high-quality development of China's aluminum industry, and there is still much room for development in the future. In July 2021, the "Fourteenth Five Year Plan" Circular Economy Development Plan issued by the National Development and Reform Commission clearly stated that by 2025, the output of recycled non-ferrous metals will reach 20 million tons, including 4 million tons of recycled copper, 11.5 million tons of recycled aluminum and 2.9 million tons of recycled lead, and the output value of resource recycling industry will reach 5 trillion yuan.

The import quantity of waste aluminum in China far exceeds the export quantity, and the import demand mainly comes from the domestic production of recycled aluminum. However, since 2010, the import quantity of waste aluminum in China has begun to show a downward trend. The reason is that with the gradual improvement of the domestic waste aluminum recycling system, the domestic waste aluminum supply has begun to take over the gap between supply and demand of waste aluminum step by step. In 2010, China imported 2.8538 million tons of waste aluminum. In 2021, China imported 1.0286 million tons of waste aluminum, down 63.96%.

3. Supply side

3.1 Bauxite: China's dependence on foreign countries is still high at this stage

At present, China's bauxite import dependence is still high. According to the data of USGS, the top three countries in the world bauxite reserves in 2020 are Guinea, Australia and Vietnam, accounting for 25%, 17% and 12% respectively, accounting for more than 50% in total. The global bauxite resources are mainly concentrated in Rio Tinto, Alcoa, UC Rusal, Hydro and other large overseas mining groups. Bauxite reserves in China account for about 3% of the world's bauxite reserves, ranking seventh. Although China has certain bauxite reserves, from the per capita perspective, bauxite resources are still far from the world average, and the domestic bauxite grade is lower than that of imported ores, resulting in higher production costs. Due to long-term mining in major production areas, mining difficulties and costs continue to increase, and the total output of bauxite is difficult to meet the demand side, so China's bauxite import demand is large at this stage. In 2020, China's alumina production using imported ores as raw materials will reach 35.42 million tons, with a year-on-year growth of 21.7%.

According to the distribution of bauxite production in the world, Australia, Guinea and China are the top three countries in bauxite production, accounting for 30%, 23% and 16% respectively, accounting for 69% in total.

At present, China's bauxite imports mainly come from Guinea, Australia and Indonesia. From the perspective of bauxite import, China mainly imported bauxite from Indonesia and Australia in 2013 and before. Since 2014, the import of bauxite from Indonesia has decreased significantly. In 2016 and after, the import of bauxite from Guinea and Australia has gradually increased. In 2021, China's net imports of bauxite will be 107.38 million tons, including 54.81 million tons of bauxite imported from Guinea, 34.08 million tons from Australia and 17.81 million tons from Indonesia, accounting for 51%, 32% and 17% respectively.

According to the statistics of the Ministry of Natural Resources, by the end of 2021, China's bauxite reserves are 711 million tons, mainly distributed in Guangxi, Henan and Guizhou. According to the statistics of the United States Geological Survey, China's bauxite output has basically shown a gradual increasing trend since 1995. The average annual output in 2017-2019 is stable at 70 million tons, and the output in 2020 is 60 million tons.

3.2. Alumina: the growth rate of total capacity narrows

China's alumina output ranks first in the world. According to IAI statistics, China's alumina output is expected to be 75.259 million tons in 2021, accounting for 54%; The alumina output of Oceania, Africa, Asia (excluding China), South America, Europe (including Russia) and North America is 20.936 million tons, 13.21 million tons, 12.111 million tons, 10.4 million tons and 2.523 million tons respectively; The unreported alumina output is expected to be 3.836 million tons.

The energy consumption and carbon emissions required for alumina production are lower than those for electrolytic aluminum production, so they are less restricted by policies at present, mainly affected by supply and demand. Affected by the growth of downstream demand, China's alumina output began to increase significantly in 2005. The output in 2005 was 8.4175 million tons, reaching 22.7878 million tons in 2008. In 2018, China's alumina annual average output exceeded 70 million tons, and in 2021, the output reached 77.475 million tons, creating a new historical high. Since 2010, the growth rate of China's total alumina production capacity has begun to narrow, with a year-on-year growth of 17.29% in 2011. By the end of 2021, the growth rate of total alumina production capacity has decreased to 1.59%. By the end of 2021, China's total alumina production capacity is 89.52 million tons, and the production capacity is 75.8625 million tons.

At present, China's alumina production capacity is mainly concentrated in Shandong, Shanxi, Henan, Guangxi, Guizhou and other regions with rich bauxite resources, accounting for 31%, 28%, 15%, 14% and 7% respectively.

According to the statistics of Antaike, in 2022, the new capacity of alumina in China will be 8 million tons, and that of Chongqing, Hebei, Guangxi and Shanxi will be 3.6 million tons, 2.4 million tons, 1.6 million tons and 400000 tons respectively. In the first half of the year, China's alumina production capacity was totally 800000 tons, which came from Nanchuan Pioneer Alumina Co., Ltd. in Chongqing.

3.3. Electrolytic aluminum: limited total capacity growth

In 2017, the supply side reform of electrolytic aluminum started, and the scale of new capacity was limited. The new capacity mainly came from the replacement of equal or reduced capacity. According to the policy requirements, the upper limit of compliance capacity of China's electrolytic aluminum industry at this stage is about 45 million tons/year. By the end of 2021, the built capacity of electrolytic aluminum in China is 44.169 million tons, and the operating capacity is 37.512 million tons. In addition to the enterprise's own willingness to reduce production, affected by such factors as the extreme weather of energy consumption "double control" and "double carbon" policies or power shortage, each electrolytic aluminum plant will limit power supply and production as required, or the project will stop batch, stop construction, or delay production.

By the end of 2021, the total capacity of electrolytic aluminum in China is 44.169 million tons, which is mainly concentrated in Shandong (9.41 million tons), Inner Mongolia (6.315 million tons), Xinjiang (6.18 million tons) and Yunnan (5.18 million tons), accounting for 61%. Influenced by environmental protection policies and coal reduction policies in some regions, China's electrolytic aluminum production capacity has been gradually transferred to clean energy rich regions such as Yunnan, Guangxi, Sichuan, Guizhou and Inner Mongolia since 2019. The completed electrolytic aluminum production capacity in hydropower rich Yunnan Province has increased from 5% at the end of 2018 to 12% at the end of 2021. With the deepening of the supply side reform and the promotion of the "dual control" and "dual carbon" policies on energy consumption, the electrolytic aluminum industry has entered a stage of high-quality development. Reducing carbon and cost, optimizing the capacity layout and energy consumption structure, improving the ability to integrate the industrial chain, research and development of green production technologies, and extending to the high-end downstream areas of the industrial chain are still the key directions for the transformation and upgrading of the industry.

By the end of 2021, China's electrolytic aluminum operating capacity is 37512000 tons, and the annual average capacity utilization rate is 88.45%. By region, the top five provinces in terms of annual average capacity utilization rate of electrolytic aluminum are Chongqing (100%), Fujian (100%), Xinjiang (99.31%), Ningxia (98.89%) and Gansu (98.57%); The last five provinces were Liaoning (44.44%), Yunnan (66.84%), Shanxi (69.81%), Hubei (73.81%) and Guangxi (86.34%).

From March 2017 to March 2022, the average utilization rate of electrolytic aluminum capacity in different regions in China is 82.28%, among which Shaanxi, Ningxia and Fujian rank in the top three, with the average utilization rate of 96.45%, 96.4% and 95.63% respectively; The average utilization rate of Guizhou, Henan, Shanxi, Hubei and Liaoning is lower than the national average, accounting for 81.85%, 71.74%, 63.94%, 55.34% and 50.92% respectively.

In 2022, China's electrolytic aluminum production capacity is expected to be significantly reduced compared with the previous year. According to the statistics of Antaike, the new capacity of electrolytic aluminum in China is expected to be 3 million tons/year in 2021; In 2022, China's electrolytic aluminum production capacity is expected to be 1.91 million tons/year, and 1.59 million tons/year in the first half of the year. Among them, Yunnan Hongtai, Yunnan Qiya, Yunnan Aluminum, Yunnan Shenhuo, Baikuang Debao and Baikuang Longlin have completed the construction of new production capacity in the first half of the year.

The output of electrolytic aluminum in China ranks first in the world. In 2021, the global output of electrolytic aluminum will be 67.243 million tons, and the output of electrolytic aluminum in China will be 38.5 million tons, accounting for 57%; The output of electrolytic aluminum in Europe, the Gulf Cooperation Council, Asia (excluding China), North America, Oceania, Africa and South America was 7.468 million tons, 5.889 million tons, 4.499 million tons, 3.88 million tons, 1.893 million tons, 1.59 million tons and 1.163 million tons respectively; The unreported output is expected to be 2.361 million tons. According to IAI statistics, the electrolytic aluminum capacity of Russia in 2021 will be 3.5846 million tons, accounting for 48% of the total electrolytic aluminum capacity in Europe.

3.4. Aluminum: the output reaches a new high

Since 2014, China's annual aluminum production has exceeded 40 million tons. In 2021, China's aluminum production will reach 61052000 tons, a new historical high. From January to July 2022, China's aluminum production will be 35.0161 million tons, a year-on-year decrease of 2.9%.

By the end of 2021, China's aluminum production distribution is mainly concentrated in Shandong, Henan, Guangdong and Jiangsu, with the output of 13.4143 million tons, 10.0635 million tons, 5.111 million tons and 4.4197 million tons, respectively, accounting for 22%, 16%, 8% and 7%; The total output of the four provinces is 32.9986 million tons, accounting for 53%.

4. Demand side

4.1. Alumina: consumption has kept growing in recent years

Since July 2016, the monthly actual consumption of aluminum oxide in China has basically remained above 5 million tons, and the annual actual consumption has been increasing year by year since 2018. From 2018 to 2021, the actual consumption will be 64.46 million tons, 70.3702 million tons, 71.9627 million tons and 76.5137 million tons respectively.

Except for a few years, China's annual alumina import volume is significantly greater than its export volume, but the import volume has declined in recent years. In 2017-2021, 2012-2016 and 2007-2011, the annual average import volume of alumina in China was 2.4311 million tons, 4.3351 million tons and 4.2113 million tons respectively. From 2007 to 2021, the highest annual import volume of alumina in China was 5.2764 million tons, and the lowest was 5.121 million tons; The highest export volume was 1.4615 million tons and the lowest was 31900 tons.

4.2. Electrolytic aluminum: import demand increased significantly

From the aluminum demand side of China, the aluminum demand of the construction, transportation, power, packaging and machinery industries is high, accounting for 33%, 22%, 15%, 11% and 9% respectively, accounting for 90% in total. In 2020, China's aluminum consumption will be 40.45 million tons. The aluminum demand structure of China is quite different from that of developed countries. In the aluminum demand structure of developed countries, transportation, packaging, construction, electrical, durable consumer goods, machinery and other categories account for 30%, 19%, 19%, 10%, 9%, 7% and 6% respectively. With the continuous development of new energy and other industries in China, the proportion of aluminum demand in transportation and electricity is expected to further expand.

Since 2005, China's primary aluminum exports have declined significantly and the import volume has fluctuated widely; Since 2008, China's primary aluminum imports have begun to exceed exports and have basically continued to this day. Only in 2019, the primary aluminum exports will slightly exceed imports. In the past two years, China's primary aluminum import demand has been strong. In 2021, China's primary aluminum import volume will hit a new high, reaching 1569200 tons, while the primary aluminum export volume will only be 76.75 tons.

At present, China's primary aluminum imports mainly come from India and Russia. From the perspective of importing countries, China's raw aluminum import structure has changed significantly in recent years. In 2009, China's raw aluminum imports mainly came from Russia, Australia and India, with the import volume of 397000 tons, 222600 tons and 161200 tons respectively; 2021 China's primary aluminum imports mainly come from India and Russia, with the import volume of 850400 tons and 291000 tons respectively. The quantity of primary aluminum imported from India exceeds that from Russia for the first time.

4.3. Aluminum: there is still much room for growth in the automotive and photovoltaic fields

Aluminum materials are processed by means of melting, rolling, extruding, stretching and forging of electrolytic aluminum. At present, downstream demand is mainly concentrated in photovoltaic, rail transit, automobile, medical, electronic and electrical appliances, architecture and other fields.

The overall trend of China's aluminum exports was upward from 1995 to 2018, and the growth began in 2022. In 2002, China's aluminum export volume was 188700 tons, reaching 5.23 million tons by 2018.

Influenced by such factors as insufficient supply, low inventory, rapid recovery of China's demand after the epidemic, and sluggish foreign demand, China's aluminum alloy imports have increased significantly in the past two years. In 2020 and 2021, China's aluminum alloy imports significantly exceeded exports, forming a contrast with previous years.

4.3.1. Real estate: sales data continues to decline

The sales area, sales volume and completed area of real estate have shown a continuous downward trend since February 2021, and the growth rate of the three indicators has turned negative since February 2022. As of July 2022, the sales area of commercial housing in China has decreased by 23.1%, the sales volume of commercial housing has decreased by 28.8%, and the completed area of housing has decreased by 23.3%. It is expected that the demand for aluminum alloy materials such as glass curtain wall and system doors and windows will be affected to some extent.

4.3.2. PV: the installed capacity shows a steady growth trend

From 2001 to 2021, the world photovoltaic installed capacity showed a steady growth trend, with an average annual growth rate of 40.26%. In 2001, the world photovoltaic installed capacity was 1GW, while in 2021, the world photovoltaic installed capacity had reached 843GW. According to BP statistics, the newly added photovoltaic installed capacity in the world will be 133GW in 2021. According to IEA's estimation, the new installed capacity of global photovoltaic will exceed 250GW in 2026, which has much room for growth compared with the current stage.

At present, China ranks first in the world in terms of cumulative installed capacity of photovoltaic. From 2021, China, the United States, Japan, Germany and India ranked the top five countries in terms of the proportion of photovoltaic installed capacity in the world, with installed capacity of 306GW, 94GW, 74GW, 58GW and 49GW respectively, accounting for 36%, 11%, 9%, 7% and 6% respectively. Europe as a whole accounted for 23%.

In recent years, China's installed capacity of photovoltaic power generation has grown steadily. According to the Opinions of the CPC Central Committee and the State Council on Completely, Accurately and Comprehensively Implementing the New Development Concept and Doing a Good Job of Carbon Peak Carbon Neutralization, by 2030, China's total installed capacity of wind and solar power generation will reach more than 1.2 billion kilowatts. The cumulative installed capacity of photovoltaic power generation in China will reach 306.56GW in 2021, and the new installed capacity will be 54.88GW in that year. The cumulative installed capacity and new installed capacity will continue to be the first in the world; Among them, 29.28GW of distributed new installed capacity accounted for 53.4%.

Photovoltaic aluminum is mainly used for photovoltaic frames in photovoltaic modules and photovoltaic brackets in distributed photovoltaic power stations. Photovoltaic aluminum frame is the core auxiliary material of Photovoltaic Module. Compared with frameless double glass module, steel structure frame and rubber frame, it has the advantages of low density, easy strengthening, good conductivity, high plasticity, easy surface treatment, corrosion resistance, convenient installation, easy transportation, long service life and easy recycling. At this stage, the market share is about 95%. The production process of photovoltaic aluminum frame is to first extrude the aluminum bar into aluminum profiles, and then obtain the finished photovoltaic aluminum frame after a series of processing, such as quenching, straightening, aging, sandblasting, anodizing, film pasting, sawing, riveting, Corner Code installation, packaging, etc. According to the statistics of China Photovoltaic Association, the cost of photovoltaic aluminum frame accounts for 9% of the cost of photovoltaic modules; According to the prospectus of relevant listed companies and their data, about 6500 tons of aluminum is used for the frame of a single GW photovoltaic module, and the cost of aluminum bars accounts for more than 80% of the aluminum frame. According to the statistics of Antaike, in 2021, the output of photovoltaic aluminum profiles in China will be 2 million tons, with an increase of 40.8%, accounting for 3.3% of the national aluminum output.

4.3.3. Automobile: the production and sales of new energy vehicles continue to maintain a high growth rate

In recent years, the growth rate of China's automobile production and sales has slowed down, but the production and sales of new energy vehicles continue to maintain a high growth rate. Since 2020, the production and sales of new energy vehicles in China have witnessed explosive growth. In 2021, the production and sales of new energy vehicles in China will be 3.677 million and 3.5205 million, respectively, with a year-on-year growth of 145.6% and 157.48%. As of July 2022, the production and sales of new energy vehicles in China are 3.371 million and 3.1935 million respectively, with year-on-year growth of 110.7% and 116.05% respectively.

From 2015 to 2021, the total aluminum consumption of China's automobile industry showed a steady growth trend, reaching 4.91 million tons in 2021; According to Tonglian data, the total aluminum consumption of China's automobile industry will reach 9.1 million tons in 2026. With the continuous promotion of automobile lightweight, the aluminum consumption per vehicle in China has increased from 61 kg in 2005 to 190 kg in 2020. According to the goal of the Technical Roadmap for Energy Saving and New Energy Vehicles, the aluminum consumption per vehicle in China will reach 350 kg in 2030. According to the goal of the Technical Roadmap 2.0 for Energy Saving and New Energy Vehicles, by 2035, the weight reduction coefficients of China's fuel passenger vehicles, pure electric passenger vehicles and buses will be reduced by 25%, 35% and 15% respectively.

5. Investment analysis

The output of aluminum oxide and electrolytic aluminum in China ranks first in the world. According to IAI statistics, China's alumina output is expected to be 75.259 million tons in 2021, accounting for 54% of the world's alumina output. By the end of 2021, the total alumina production capacity in China will be 89.52 million tons, and the production capacity in progress will be 75.8625 million tons. The production capacity is mainly concentrated in Shandong, Shanxi, Henan, Guangxi, Guizhou and other regions with rich bauxite resources, accounting for 31%, 28%, 15%, 14% and 7% respectively. At present, China's alumina production capacity layout is gradually shifting to the southwest. According to the statistics of Antaike, in 2022, China's alumina production capacity will increase by 8 million tons, and that of Chongqing, Hebei, Guangxi and Shanxi will be 3.6 million tons, 2.4 million tons, 1.6 million tons and 400000 tons respectively. In 2021, the global output of electrolytic aluminum will be 67.243 million tons, and the output of electrolytic aluminum in China will be 38.5 million tons, accounting for 57%. According to the policy requirements, at this stage, the upper limit of the compliance capacity of China's electrolytic aluminum industry is about 45 million tons/year, and the new capacity mainly comes from the replacement of equal or reduced capacity. By the end of 2021, China's electrolytic aluminum production capacity has been built to 44.169 million tons and operating capacity to 37.512 million tons, mainly concentrated in Shandong (9.41 million tons), Inner Mongolia (6.315 million tons), Xinjiang (6.18 million tons) and Yunnan (2.94 million tons), accounting for 61%. According to the statistics of Antaike, the new capacity of electrolytic aluminum in China is expected to be 1.91 million tons/year in 2022, and 1.59 million tons/year in the first half of the year.

It is estimated that the cost of electrolytic aluminum will remain at a high level in the fourth quarter. Influenced by high energy prices in Europe, Russia Ukraine conflict, epidemic situation and other factors, in early 2022, some overseas electrolytic aluminum enterprises reduced production, resulting in a shortage of supply. The price and gross profit of electrolytic aluminum increased rapidly, and the gross profit of electrolytic aluminum once reached 5752.81 yuan/ton. Then, with the accelerated pace of interest rate increase by the Federal Reserve and the gradual recovery of electrolytic aluminum production capacity, the price and gross profit of electrolytic aluminum gradually fell, and the lowest gross profit was only 13.88 yuan/ton. As of September 16, 2022, the gross profit of electrolytic aluminum had recovered to 1092.88 yuan/ton. From the perspective of the cost composition of electrolytic aluminum in China, due to the impact of the epidemic situation and the production restriction of the Winter Olympics, the aluminum oxide profit once reached 655 yuan/ton in February 2022. Later, with the recovery of local capacity supply, the aluminum oxide price continued to fall from a high level; Influenced by the high price of raw materials such as petroleum coke and coal tar pitch, the increase in downstream demand and epidemic situation, the price of prebaked anode has risen all the way from 2700 yuan/ton in April 2020. As of August 31, 2022, the domestic price has reached 7548 yuan/ton, slightly falling back from the historical high but still in the high price range; According to SMM statistics, in August 2022, the weighted average electricity price of the domestic electrolytic aluminum industry will be 0.45 yuan/kWh, with a month on month increase of 0.018 yuan/kWh. Among them, the cost of thermal power will be high and the cost of hydropower will be increased; In August, the electricity cost of Xinjiang, Yunnan, Shandong and Henan accounted for 22%, 34%, 39% and 41% of the electrolytic aluminum cost respectively. With the arrival of the coal peak season and Yunnan dry season, it is estimated that the electricity cost will remain at a high level. It is estimated that the electrolytic aluminum cost will remain at a high level in the fourth quarter, and aluminum enterprises with better cost control are expected to increase profits.

At this stage, the proportion of hydropower in the electricity consumption structure of China's electrolytic aluminum industry is increasing. From the perspective of the power structure and energy consumption of the world electrolytic aluminum industry in 2021, the power structure of the world electrolytic aluminum industry is 57% thermal power, 31% hydropower, 10% gas electricity, 1% nuclear power and 1% other renewable energy. Aluminum enterprises in Asia, Oceania and Africa are mainly engaged in thermal power production, accounting for 94%, 58% and 59% respectively; Aluminum enterprises in Europe, North America and South America mainly produce hydropower, accounting for 93%, 95% and 82% respectively; Aluminum enterprises in GCC member countries are special, mainly producing electrolytic aluminum from natural gas power generation, accounting for 99%. According to the statistics of Antaike, in the electricity consumption mode of China's electrolytic aluminum industry in 2019, thermal power accounts for 86% (including 65% of self provided power and 21% of grid power), hydropower accounts for 10%, wind power accounts for 2%, and solar energy and nuclear power account for 1%. By the end of 2021, the proportion of thermal power in China's electrolytic aluminum industry is 82%, and the proportion of hydropower has increased to 16%. In the future, with the accelerated process of capacity replacement in the electrolytic aluminum industry, the proportion of thermal power in the power structure will further decline, and the proportion of green capacity such as hydropower will further increase. In the process of electrolytic aluminum industry transforming from high-speed development to high-quality development, the transformation of power cost is faced with both challenges and opportunities. Although the transaction activity of the national carbon trading market is not very active at present, drawing on the development history of the carbon emission trading system of the European Union and other countries, more high energy consuming industries will be included in the national carbon market during the period of steady development of the national carbon market and the transition from local pilot market to the national carbon market. Funds will be gradually introduced to enterprises with high emission reduction and efficiency and strong energy transformation capability through the resource allocation function of the carbon market, To realize the stable operation of the carbon market and the green and sustainable development of enterprises, electrolytic aluminum enterprises with strong emission reduction capacity and green and environmental protection are expected to benefit from it in the future.

In the short term, there is still room for aluminum prices to decline. Factors such as low inventory, epidemic situation and geopolitical conflict may provide support for aluminum prices. On September 21, 2022, the Federal Reserve announced at the FOMC meeting that it would increase the interest rate by 75 basis points, raising the benchmark interest rate to 3% - 3.25%, which is in line with market expectations. The latest dot matrix chart shows that the Fed members predict that the median interest rate at the end of 2022 will be 4.4%, and it will reach 4.6% in 2023. It will start to fall slightly in 2024. At this meeting, the Federal Reserve continued Powell's previous hawkish speech at the annual meeting of the Central Bank in Jackson Hole, conveyed to the market that interest rates would still be raised by 125 basis points in 2022, lowered the GDP growth forecast to 0.2% (1.7% in June), and raised the unemployment rate forecast to 4.4% (3.9% in June). From the perspective of inflation expectations in the United States, cost inflation has fallen back due to the recent decline in bulk commodities, but due to repeated epidemics, geopolitical conflicts and other factors, the decline space is relatively limited; In addition, affected by the rapid growth of workers' wages and rents, the core CPI of the United States is still high. If the Federal Reserve insists on reducing inflation and chooses to let the market hard land, aluminum prices may continue to decline. At present, LME and SHFE aluminum inventories remain low, European energy prices are high, leading to the suspension of some electrolytic aluminum enterprises, and the demand for aluminum in new energy photovoltaic and other industries is still strong. Aluminum enterprises mainly engaged in auto parts and aluminum alloys still have more opportunities.

(This document is for reference only and does not represent any investment advice from us.)

Photovoltaic aluminum is mainly used for photovoltaic frames in photovoltaic modules and photovoltaic brackets in distributed photovoltaic power stations. Photovoltaic aluminum frame is the core auxiliary material of photovoltaic module. Compared with frameless double glass module, steel structure frame and rubber frame, it has the advantages of low density, easy strengthening, good conductivity, high plasticity, easy surface treatment, corrosion resistance, convenient installation, easy transportation, long service life and easy recycling. At this stage, the market share is about 95%. The production process of photovoltaic aluminum frame is to first extrude the aluminum bar into aluminum profiles, and then obtain the finished photovoltaic aluminum frame after a series of processing, such as quenching, straightening, aging, sandblasting, anodizing, film pasting, sawing, riveting, corner code installation, packaging, etc. According to the statistics of China Photovoltaic Association, the cost of photovoltaic aluminum frame accounts for 9% of the cost of photovoltaic modules; According to the prospectus of relevant listed companies and their data, about 6500 tons of aluminum is used for the frame of a single GW photovoltaic module, and the cost of aluminum bars accounts for more than 80% of the aluminum frame. According to the statistics of Antaike, in 2021, the output of photovoltaic aluminum profiles in China will be 2 million tons, with an increase of 40.8%, accounting for 3.3% of the national aluminum output.

4.3.3. Automobile: the production and sales of new energy vehicles continue to maintain a high growth rate

In recent years, the growth rate of China's automobile production and sales has slowed down, but the production and sales of new energy vehicles continue to maintain a high growth rate. Since 2020, the production and sales of new energy vehicles in China have witnessed explosive growth. In 2021, the production and sales of new energy vehicles in China will be 3.677 million and 3.5205 million, respectively, with a year-on-year growth of 145.6% and 157.48%. As of July 2022, the production and sales of new energy vehicles in China are 3.371 million and 3.1935 million respectively, with year-on-year growth of 110.7% and 116.05% respectively.

From 2015 to 2021, the total aluminum consumption of China's automobile industry showed a steady growth trend, reaching 4.91 million tons in 2021; According to Tonglian data, the total aluminum consumption of China's automobile industry will reach 9.1 million tons in 2026. With the continuous promotion of automobile lightweight, the aluminum consumption per vehicle in China has increased from 61 kg in 2005 to 190 kg in 2020. According to the goal of the Technical Roadmap for Energy Saving and New Energy Vehicles, the aluminum consumption per vehicle in China will reach 350 kg in 2030. According to the goal of the Technical Roadmap 2.0 for Energy Saving and New Energy Vehicles, by 2035, the weight reduction coefficients of China's fuel passenger vehicles, pure electric passenger vehicles and buses will be reduced by 25%, 35% and 15% respectively.

5. Investment analysis

The output of aluminum oxide and electrolytic aluminum in China ranks first in the world. According to IAI statistics, China's alumina output is expected to be 75.259 million tons in 2021, accounting for 54% of the world's alumina output. By the end of 2021, the total alumina production capacity in China will be 89.52 million tons, and the production capacity in progress will be 75.8625 million tons. The production capacity is mainly concentrated in Shandong, Shanxi, Henan, Guangxi, Guizhou and other regions with rich bauxite resources, accounting for 31%, 28%, 15%, 14% and 7% respectively. At present, China's alumina production capacity layout is gradually shifting to the southwest. According to the statistics of Antaike, in 2022, China's alumina production capacity will increase by 8 million tons, and that of Chongqing, Hebei, Guangxi and Shanxi will be 3.6 million tons, 2.4 million tons, 1.6 million tons and 400000 tons respectively. In 2021, the global output of electrolytic aluminum will be 67.243 million tons, and the output of electrolytic aluminum in China will be 38.5 million tons, accounting for 57%. According to the policy requirements, at this stage, the upper limit of the compliance capacity of China's electrolytic aluminum industry is about 45 million tons/year, and the new capacity mainly comes from the replacement of equal or reduced capacity. By the end of 2021, China's electrolytic aluminum production capacity has been built to 44.169 million tons and operating capacity to 37.512 million tons, mainly concentrated in Shandong (9.41 million tons), Inner Mongolia (6.315 million tons), Xinjiang (6.18 million tons) and Yunnan (2.94 million tons), accounting for 61%. According to the statistics of Antaike, the new capacity of electrolytic aluminum in China is expected to be 1.91 million tons/year in 2022, and 1.59 million tons/year in the first half of the year.

It is estimated that the cost of electrolytic aluminum will remain at a high level in the fourth quarter. Influenced by high energy prices in Europe, Russia Ukraine conflict, epidemic situation and other factors, in early 2022, some overseas electrolytic aluminum enterprises reduced production, resulting in a shortage of supply. The price and gross profit of electrolytic aluminum increased rapidly, and the gross profit of electrolytic aluminum once reached 5752.81 yuan/ton. Then, with the accelerated pace of interest rate increase by the Federal Reserve and the gradual recovery of electrolytic aluminum production capacity, the price and gross profit of electrolytic aluminum gradually fell, and the lowest gross profit was only 13.88 yuan/ton. As of September 16, 2022, the gross profit of electrolytic aluminum had recovered to 1092.88 yuan/ton. From the perspective of the cost composition of electrolytic aluminum in China, due to the impact of the epidemic situation and the production restriction of the Winter Olympics, the aluminum oxide profit once reached 655 yuan/ton in February 2022. Later, with the recovery of local capacity supply, the aluminum oxide price continued to fall from a high level; Influenced by the high price of raw materials such as petroleum coke and coal tar pitch, the increase in downstream demand and epidemic situation, the price of prebaked anode has risen all the way from 2700 yuan/ton in April 2020. As of August 31, 2022, the domestic price has reached 7548 yuan/ton, slightly falling back from the historical high but still in the high price range; According to SMM statistics, in August 2022, the weighted average electricity price of the domestic electrolytic aluminum industry will be 0.45 yuan/kWh, with a month on month increase of 0.018 yuan/kWh. Among them, the cost of thermal power will be high and the cost of hydropower will be increased; In August, the electricity cost of Xinjiang, Yunnan, Shandong and Henan accounted for 22%, 34%, 39% and 41% of the electrolytic aluminum cost respectively. With the arrival of the coal peak season and Yunnan dry season, it is estimated that the electricity cost will remain at a high level. It is estimated that the electrolytic aluminum cost will remain at a high level in the fourth quarter, and aluminum enterprises with better cost control are expected to increase profits.

At this stage, the proportion of hydropower in the electricity consumption structure of China's electrolytic aluminum industry is increasing. From the perspective of the power structure and energy consumption of the world electrolytic aluminum industry in 2021, the power structure of the world electrolytic aluminum industry is 57% thermal power, 31% hydropower, 10% gas electricity, 1% nuclear power and 1% other renewable energy. Aluminum enterprises in Asia, Oceania and Africa are mainly engaged in thermal power production, accounting for 94%, 58% and 59% respectively; Aluminum enterprises in Europe, North America and South America mainly produce hydropower, accounting for 93%, 95% and 82% respectively; Aluminum enterprises in GCC member countries are special, mainly producing electrolytic aluminum from natural gas power generation, accounting for 99%. According to the statistics of Antaike, in the electricity consumption mode of China's electrolytic aluminum industry in 2019, thermal power accounts for 86% (including 65% of self provided power and 21% of grid power), hydropower accounts for 10%, wind power accounts for 2%, and solar energy and nuclear power account for 1%. By the end of 2021, the proportion of thermal power in China's electrolytic aluminum industry is 82%, and the proportion of hydropower has increased to 16%. In the future, with the accelerated process of capacity replacement in the electrolytic aluminum industry, the proportion of thermal power in the power structure will further decline, and the proportion of green capacity such as hydropower.