This week, the alumina market continues to be dominated by price confirmation at certain points and expected price declines in the future. The signing of large contracts between major enterprises, with transaction prices concentrated between 2780-2800 yuan. With the completion of transactions between large factories and the confirmation of prices, the market has once again entered the trading phase of short selling prices by small and medium-sized unsupported alumina enterprises and traders. The wait-and-see attitude has increased again, and the intended quotes have once again declined. However, due to the serious subjective and objective slowdown in liquidity, the market still has limited transactions. As of Friday, Aladdin reported a comprehensive price range of 2750-2780 yuan/ton for domestic spot alumina, with a weekly average decline of 3.01% compared to the previous period; The weighted price of domestic spot goods is 2763.6 yuan/ton, and the weekly average price has decreased by 2.82% month on month.

Figure 1 Weighted Price Trend of Domestic Spot Alumina

Data source: Aladdin (ALD)

The ups and downs are beginning to show signs

If the sharp rise in alumina prices since October last year was caused by the node style transactions of major alumina and electrolytic alumina enterprises, as well as excessive participation in speculative trade, then the increasingly visible sharp decline in alumina prices will also be determined by the node style transactions of major enterprises and the weak bargaining of small and medium-sized alumina enterprises. In the current "vacuum" stage of phased exit of major enterprises, small and medium-sized alumina enterprises, speculative traders, and large aluminum enterprises whose sales and procurement roles are gradually changing can directly affect price trends and price ranges at nodes.

Node based trading of large quantity non pricing contracts

The large quantity non pricing contract at the beginning of each month can be regarded as the main reference and model for spot market pricing. The advantage is that it can basically clarify the price during the node period and has obvious representativeness. The disadvantage is that there are too few participants, and the transaction does not have sustainability in the later stage. Once the transaction is completed, it means that this price has basically become history, especially in the downward stage. The emergence of this price means that lower prices can be squeezed and achieved by other small and medium-sized alumina enterprises, and the price decline will mostly exceed the acceptable range of the mainstream market.

Where does the discovery of the "average price of the three networks" come from?

From the perspective of supply and demand security for major enterprises, it is understandable to sign long-term contracts with a majority proportion. In the current market environment, due to the increasing volatility of the spot price of alumina itself, cost control fluctuations are becoming increasingly uncontrollable. Long term contracts based on aluminum price ratios are difficult to sign, while contracts based on spot price references, such as the "average price of the three networks", are starting to increase.

Everything has a 'degree'. With the increasing application of the three grid average price contract, the alumina production of major alumina enterprises is either consumed by their own electrolytic aluminum demand and inventory, or all are signed into long-term spot contracts in the form of three grid average price. From the performance in the first quarter, it can be seen that the main alumina enterprises have basically withdrawn from the influence and control of spot prices of alumina. The four major alumina enterprises with export capabilities, namely China Aluminum, Xinfa, Jinjiang, and Xiangjiang, which account for 53% of alumina production, except for some enterprises that have the ability to confirm market prices during the nodal quantitative pricing stage at the beginning of the month, the objects of market price discovery began to shift in the following 30 days.

The website quotes the spot price of alumina, and it is not possible to use the long-term contract price as a circular reference, otherwise it will become a static price and lose its guiding significance. This also determines that after major alumina enterprises lose control and discourse power over spot prices, small and medium-sized alumina enterprises without supporting electrolytic aluminum enterprises and strong financial maneuvering space, as well as speculative trade, will become the main reference and sample for spot price discovery. However, the transactions of these entities lack bargaining power and are easily passively accepted, causing strong market fluctuations. In the downward phase, small and medium-sized alumina enterprises have weak bargaining and accept a much larger price decline than major alumina enterprises. Traders may also take advantage of regional and time asymmetry to short the market in advance, which will inevitably lead to a significant drop in prices. In the upward stage, excessive participation in speculative trade in the market, hoarding and controlling liquidity phenomena emerge one after another, which can easily cause market frenzy and significantly push up alumina prices in the short term.

Both major enterprises at both ends need to reasonably influence the market

Whether it is a major alumina enterprise or a major electrolytic aluminum enterprise, both parties directly guide the market through reasonable spot cooperation in different trading directions. Even if the trading volume is not sufficient as a sample reference in some periods, the continuous guidance and guiding effect will smooth out the market's ups and downs, at least eliminate the excessive panic mentality in some periods of the market. As a responsible large enterprise, it is impossible to utilize the market for a long time without participating in it. With the emergence of price fluctuations, contract execution issues, and intensified market competition, the market influence of major enterprises will always be exerted again. Aladdin (ALD) believes that it is necessary to sign some large long-term contracts between major alumina enterprises and major electrolytic aluminum enterprises to ensure the reduction of sales or procurement pressure and bargaining costs, but also to leave a small amount of spot sales and procurement volume. The sustainable path to price discovery is to mutually influence the actual spot transaction price through various factors during the process.

Future forecast

The main contradiction in the current alumina market is no longer the issue of aluminum price fluctuations and supply balance, but the objective impact of the artificial effect of trading modes and inertia downward adjustments, resulting in price fluctuations that overlap in both directions. After losing control and discourse power, the price of alumina is expected to accelerate its decline. Expected transactions next week are concentrated in Shanxi at 2720-2750 yuan, Henan at 2740-2760 yuan, Shandong at 2730-2750 yuan, and Southwest at 2750-2800 yuan.

Source/Aladdin Camp Network