Inventories increase led to a larger decline in copper and aluminum prices

Driven by strong copper, last Tuesday's second-half aluminum hit another four-month high of 1,951 U.S. dollars. Last Wednesday, the price of copper fell sharply by a 4% increase in inventories and a 1% rise in the U.S. producer price index. The drop, which fell to a low of $1860, has rebounded since then, closing at $1,887/ton for the week, down $29/ton. After Lun's aluminum broke through 2000 U.S. dollars in March, it quickly went down to 1,700 U.S. dollars. It seems that 2000 U.S. dollars has become a good memory for people. However, since July, under the support of external factors such as the strong rise in copper prices and the depreciation of the US dollar, the buying of funds has once again begun. The price of aluminum has once again risen to the level of 1950 US dollars, and has recently recovered, but the rising channel remains intact. So, how long can the external support last? Moreover, the determinants of prices at the end have to depend on fundamentals. Since the beginning of this year, the low inventory of refined copper has been repeatedly speculated by the market, resulting in a new high price, while aluminum prices have been significantly weaker, and the corresponding spread between the two has also reached a historically high point. From 2000 to 2003, the copper-aluminum price ratio remained mostly between 1.05 and 1.26; since the end of 2003, it has risen to 1.3, and the price has rapidly increased to the nearest 1.9 line, which is equal to 2 .0. Does the historically high copper-aluminum ratio mean a reorientation of the parity relationship between the two or does it contain huge investment opportunities? Of course, copper and aluminum, as basic metals, have common macroscopic fundamentals, but in recent years, there has been a huge difference in supply and demand fundamentals, especially in supply. Therefore, this kind of experience-based judgment needs to continue to be observed, but we cannot exclude the support of the recent high price ratio for the aluminum market. In our judgment, the strong copper market in the short term is still an important external support for aluminum prices. Aluminium market, in addition to concerns about the closure of production capacity in Europe, the focus of the market is China's policy changes to cancel the preferential tax rate of processing trade. Since this Monday, the alumina processing trade policy has officially ceased, and the processing business of alumina (aluminum ore) that has been approved by the competent commercial authority and filed at the customs has been allowed to be executed within the validity period of the approval, and will not be granted after the expiration date. If it is postponed and fails to process the re-exports in accordance with the regulations, the procedures for verification and cancellation of manuals shall be handled in accordance with the provisions of domestic sales for processing trade. Although rumors about changes in the processing trade policy have been rising since March and April of this year, once the policy was formally announced, the market’s reaction was not dramatic. We believe that there are the following reasons: First, the market has already anticipated changes in policy, and the approval of processing trade has stopped before, and prices have largely reflected this expectation; second, the policy has not adopted a “one size fits all” approach. The approved processing trade continues to be implemented, which has limited impact in the short term. According to estimates by industry insiders, there are still 400,000 to 500,000 tons of electrolytic aluminum for processing trade before the end of the year, and another 500,000 tons will be estimated next year. Third, trade conditions are the key factors in determining the size of trade. This means that as long as trade has not been banned and the supply and demand structure at home and abroad has not been substantially changed, any increase in transaction costs will eventually be reflected in the adjustment of the price relationship. Therefore, the evolution of the domestic price relationship has caused the cancellation of processing trade, the increase of export tariffs and other policy measures, and the impact on imports and exports has been greatly reduced. Fourth, the import price of alumina is much lower than the port quotation, according to the customs data, The average price of alumina imports for half a year was US$360/ton, and some processing trade imports were even lower than US$300/ton, so the actual impact was less than expected; in addition, some aluminum ingots could be processed into aluminum rods, aluminum rods, etc. Subsequent product exports, and reasonable avoidance of tariffs, but the large export of aluminum, the international market will take some time to be recognized, the short-term breakthrough is unlikely to rise. As for the judgment of later trend, the big trend depends on the global fundamentals, especially the changes in demand; and structural factors have a decisive influence on the domestic and foreign price-to-price relations. Although there was a large-scale decline in the previous week, the uptrend channel remained intact and there was no decline in interest in the market. The key factor supporting the recent aluminum price is that the London copper is still strong, and the continuous decline in inventory has not attracted enough attention from the market. . Therefore, there is still momentum for the upside in the aluminum market. It is believed that with the continued strong aluminum market, domestic aluminum prices will maintain a steady increase. However, the recent rise in domestic inventories and the impact of seasonal factors on consumption have made it difficult to change the overall weakness. Once the price rises, the pressure to sell a hedge is higher. Source: Middle Shenzhen