The passing of 2004 is a gratifying year for the long-term sluggish international aluminum market. The average closing price of LME aluminum for the whole year of 2004 was at 1,740 US dollars per ton, far higher than the total of 1,440 US dollars per ton in 2003. The average annual price, an increase of 21%. Aluminum last year has been operating in the rising channel shown in Chart 1 below, and it is supported by the tight supply of fundamentals. In the first half of 2005, it may still continue to hit a target of $2,000-2,100 per ton. However, with the constant change in the supply pattern of the fundamentals, the global outlook for 2005 is expected to face an oversupply situation. Therefore, 2005 will be a crucial year for the bull market transformation in the international aluminum market. The 2005 annual average price is expected to At 1650-1700 US dollars per ton. As far as the domestic situation is concerned, with the continuous improvement of China's primary aluminum demand and smelting capacity, since 2002, China has reversed the pattern of supply shortage in one stroke, transforming it from a net importer to a net exporter. The net export volume increased from 350,000 tons in 2002 to 420,000 tons in 2003 and 600,000 tons in 2004, an average annual increase of 35%. In 2004, the average price was 16,500 yuan per ton, higher than 14,800 yuan per ton in 2003 and 13,500 yuan per ton in 2002. It is expected that consumption will continue to grow at a two-digit rate in 2005, and the rate of increase in output will decline, but it will still maintain a positive growth trend. The average price in 2005 is expected to be around 15500-16000 yuan per ton. In the following analysis, the author starts from a more basic analysis of supply and demand, analyzes and forecasts the global supply and demand in 2004 and 2005, and forecasts the global price trend in 2005. At the same time, the author also analyzes the impact of the new tariff policy on the domestic market in 2005. The latter part focuses on technical analysis and gives the author's views on the market and trading strategies. I. Analysis of global primary aluminum supply and demand in 2004 and forecast of aluminum consumption in 2005 are highly correlated with the economy. In times of economic recession and decline in industrial production, the decline in aluminum consumption tends to exceed the rate of decline in industrial production; and when the economy is in an upward phase and industrial production continues to expand, the speed of aluminum consumption is much higher than that of industrial growth. Therefore, here the author prepares to use the rubber analysis method and use the correlation between economic growth and aluminum consumption to roughly estimate the consumption growth rate and consumption in 2004 and 2005. The relationship between consumption growth rate and GDP growth rate is shown in the figure below. Table 1: Global primary aluminum consumption growth rate and GDP growth year 1990 1991 1992 1993 1994 1995 1996 Aluminum consumption% 0.99 -2.21 -1.58 -2.26 8.75 3.49 0.59 GDP% 2 0.6 2 2.3 3.7 3.6 4.1 Year 1997 1998 1999 2000 2001 2002 2003 Aluminum Consumption % 6.03 0.16 6.19 6.83 -5.34 6.81 8.05 GDP% 4.2 2.8 3.7 4.7 2.4 3 3.9 Source: WBMS, IMF; Using the data shown in the above table, we can establish a linear regression equation, Y=aX+b, where Y is the dependent variable, which represents the growth rate of aluminum consumption; X is the independent variable and represents the GDP growth rate; using the above data, the regression equation Y=2.91X-6.33 can be calculated; the correlation coefficient is 0.72, showing a strong correlation. The IMF forecasted in the September 2004 Global Economic Outlook that the global economic growth rates in 2004 and 2005 were 5.0% and 4.3%, respectively. According to measurements, the growth rate of global aluminum consumption in 2004 and 2005 was 8.21% and 6.17% respectively, and the total aluminum consumption was 29.62 million tons and 31.45 million tons respectively. In terms of output, I borrowed data released by Reuters. According to data released by the Reuters Metals Production Database (MPD) on October 8, global production in 2004 is expected to reach 29.49 million tons, and in 2005 it is expected to be 31.78 million tons. Table II, 2004 and 2005 Aluminum Analysis Forecast 2000 2001 2002 2003 2004* 2005* Global Production 2441.81 2453.60 2607.60 2800.40 2949 3178 Global Consumption 2505.91 2372.15 2533.75 2737.68 2962 3145 Surplus/Insufficient 64.1 81.45 73.85 67.72 -13 +33 Global Inventory 309 302 293.4 297.3 308 328 Average price 1558 1455 1365 1439 1740 1650 Source: WBMS, International Aluminum Association, LME; Unit: 10,000 tons; Second, China's demand analysis and forecast for aluminum Because of its light weight, good ductility , electrical conductivity, corrosion resistance, more and more applications. At present, China's aluminum consumption is mainly concentrated in construction, transportation and packaging, forming the main aluminum consumption areas such as South China, East China and Southwest Chongqing. With the rapid economic development in our country, the four aspects of clothing, food, housing, and transportation are entering the high consumption era of “good living†and “being goodâ€. In particular, the process of urbanization in East China and South China is accelerating, and the demand for aluminum is accelerating. In addition, as the living standards of residents have increased, vehicles such as automobiles have begun to enter home consumption in large numbers, and the dramatic increase in automobile production has also led to a substantial increase in demand for aluminum. The author measured the consumption of aluminum in 2004 and the forecast in 2005 mainly through two methods. 1. Apparent consumption method means consumption = production - (+) stocks increase or decrease - net exports; where inventory includes dominant stocks, ie exchange stocks, and implicit stocks, ie business stocks. According to the statistics of the National Bureau of Statistics, as of the third quarter of this year, cumulative stocks of enterprises across the country totaled 290,000 tons, an increase of 21% year-on-year, and 240,000 tons in the same period of 2003; therefore, based on this calculation, inventory in the first and the third quarter of this year increased by 5 compared to the same period of last year. Ten thousand tons; stocks in the stock exchanges have increased by 107,000 tons (from the beginning of 2004 to 28,000 tons) from January to October 2004; according to statistics from the Nonferrous Metals Association, raw aluminum production totaled 4.98 million tons from January to October. Growth of 22%; Customs statistics totaled 420,000 tons of net exports from January to October. Therefore, the apparent consumption of primary aluminum was 498-10.7-5-42=4.40.3 million tons in January-October 2004; It is estimated that in 2004 China's cumulative production of primary aluminum was around 6.5-6.6 million tons; net exports accelerated in November and December and was estimated to be around 600,000 tons; as of mid-December, exchange stocks had fallen to more than 70,000. Ton, the dominant inventory increased by about 40,000 tons in 2004; according to the current 20% growth rate of hidden stocks, the cumulative amount of hidden stocks in 2004 increased by 5÷3x4 = 66,000 tons; therefore, the total apparent consumption in 2004 in China The amount is about 660-4-6.6-60 = 5.894 million tons. If China's consumption in 2003 was 5.08 million tons as measured by CRU, the increase in primary aluminum consumption in 2004 is expected to be 16%. In 2004, the oversupply exceeded 700,000 tons. 2. Regression analysis Over the past four decades, the average level of aluminum consumption growth in developing countries has generally remained at a relative proportion to the average annual growth rate of industrial production. The growth rate of aluminum consumption is usually 1.3 times the growth rate of industrial production. 1.5 times. In the past eight years, China’s primary aluminum consumption growth rate has exceeded 1.2 times the industrial output growth rate. Below, the author uses China's consumption data published by CRU and industrial production data released by the National Bureau of Statistics to conduct a regression analysis of the relationship between the two, trying to explore the traces of consumption growth. Table 4: Years of industrial production and aluminum consumption data 1997 1998 1999 2000 2001 2002 2003 2004* 2005* Industrial production 13.10 10.75 11.58 11.40 9.90 12.60 17.00 16.7 15 Consumption of aluminum 13.57 9.86 12.98 14.27 8.64 18.82 21.20 21.58 18.7 Source: CRU, National Bureau of Statistics: Taking industrial production as an independent variable and the aluminum consumption growth rate as the dependent variable, regression analysis of the above data can yield the following regression equation: %Aluminum Consumption = 1.692x Industrial Production % -6.618, Correlation coefficient 0.87, Highly relationship. If the growth rate of industrial production in 2004 is 16.7%, the growth rate of aluminum consumption is estimated to be 21.58%, and the total consumption is 6.185 million tons, which is higher than the 5.9 million tons predicted by the apparent consumption. Even if China's industrial production fell to a 15% growth rate in 2005, the aluminum consumption growth rate will remain at a rate of 18.7%, and the total consumption will be 7.34 million tons. If and only if the industrial production rate is lower than the growth rate of 4%, the growth rate of consumption in 2005 will be close to zero. In 2005, the author still calculated the growth rate of 20%. Table V. Forecast of supply and demand for primary aluminum in China in 2001 and 2004 and 2005 2001 2002 2003 2004* 2005* Output 343 440 550 660 792 Consumption 353 420 509 618 734 Balance -10 +20 +41 +42 +58 Source: CRU; Unit: 10,000 tons; Net exports are not calculated. Based on the above analysis of domestic consumption, China will still be a year of oversupply in 2005, and the surplus will tend to expand. The price situation in 2005 is not optimistic. III. Analysis of Impacts of Changes in Tariff Policies on Domestic Aluminium Markets The major variables in 2005 relative to 2004 were changes in tariff policies. Therefore it is necessary to put forward a separate analysis. From January 1, 2005, China has cancelled the 8% export tax rebate for electrolytic aluminum and imposed 5% export tariff at the same time. This policy will have a profound impact on China's electrolytic aluminum industry. The author believes that the rapid expansion of the domestic electrolytic aluminum industry will be inhibited in the long run, which will help create a win-win situation for the international and domestic markets. However, China's aluminum production in 2005 is still estimated to maintain a growth rate of about 20%. (I) Exports decline sharply in the coming months Since the 1997 Asian financial crisis, China has imposed a 15% export tax rebate on aluminum, which has greatly stimulated the substantial expansion of domestic aluminum production and production capacity. Before the aluminum export tax rebate was reduced to 8% on January 1, 2004, aluminum exports soared at the end of 2003. Only in December 2003, China’s primary aluminum exports reached 190,000 tons, far higher than the previous monthly average of 70,000 tons. However, within the next six months, the export level once again fell back to the normal monthly average of 70,000-80,000 tons. Therefore, in order to catch a train after the reduction of export tax rebates, the export of aluminum companies has led to a sharp decline in aluminum exports in the next few months. Similarly, since the beginning of August 2004, with the rumors that export tax rebates will be completely abolished and even the export tariffs will be filled in the market, aluminum companies have accelerated the pace of exports. From August to November, the monthly export volume was over 140,000 tons, far higher than the previous level of 80,000 tons. According to reports, the export volume in December will be even larger, and it will be at the level of 15-20 million tons. Then, in 2004, China's export volume will reach more than 1.3 million tons, and the net export volume will be more than 600,000 tons. Once the new tariff is implemented, the tariff factors that stimulate the export of the enterprise no longer exist, and the monthly aluminum export volume is expected to drop again to an average of around 80,000-90,000 tons in 2005. By then, international market prices will no longer focus on feeling the heavy pressure from China. Higher prices will lead to a sharp rebound in the domestic market. (2) Repositioning new tariffs at home and abroad will lead to a reorientation of domestic and foreign exchange rates and a major impact on domestic processing. Assume that an aluminum plant processing fee is 8,000 yuan / ton, imported alumina price (CIF) = 4700 yuan / ton; aluminum ingot export price =1,900 US dollars / ton; domestic sales price = 16,000 yuan / ton; import link value-added tax rate = 17%; the cost of producing one ton of aluminum is 4700x1.96+8000=17210; before and after the adjustment of export tax rebate: before adjustment: tax refund=8000÷1.17×8%=547 yuan/ton, after adjustment: tax refund=8000 ÷ 1.17×0%=0/ton. That is, due to the tax rebate rate adjustment, the factory tax rebate has been reduced by 547 yuan/ton. For a 5% tariff on export of 1,900 US dollars, the company will further reduce income by 1900x0.05x8.28 = 786 yuan per ton; before canceling export tax rebates and levying 5% tariff, the domestic and international parity ratio of the breakeven point is 7.5 ((17210-547/ 1.17)/1900) In the case of purchasing imported alumina, producing aluminum ingot exports, canceling export tax rebates, and levying a 5% export tariff, the benefits are approximately: gross profit = sales price-cost = 1900 x 8.28 x 0.95-[17210-17210x17 [%/1.17]=14950-14340=510 yuan per ton; breakeven point Domestic and international parity is 7.9 ([17,210-17210x17%/1.17]/1900/0.95) Based on the above analysis, after implementing the new tariff policy, the feed processing enterprises The breakeven point price increased from 7.5 to 7.9, and the operating cost increased by 1333 (547+786) yuan per ton. (III) Long-term suppression of output growth The new tariff policy for China's electrolytic aluminum industry can not only avoid further deterioration of trade conditions, but also effectively curb domestic investment overheating and ease energy shortages. Due to the overheated investment in the electrolytic aluminum industry, the output and production capacity of the electrolytic aluminum industry in China expanded significantly in 2004. At present, the national production capacity has reached more than 9 million tons, far exceeding the actual demand. It is because of the substantial expansion of China’s electrolytic aluminum production and export volume that the world is watching China’s every move. If we continue to increase production and increase exports, we will continue to drive down prices in the international market, and then move into the vicious cycle of more production and lower selling prices. The cancellation of export tax rebates and the collection of export tariffs will increase the export costs of electrolytic aluminum enterprises, forcing electrolytic aluminum companies to reduce their exports, thereby reducing the pressure on domestic energy and resources and realizing the sustainable development of the electrolytic aluminum industry. In the long run, it is possible to achieve a win-win situation in both international and domestic markets. Fourth, technical forecast From the technical form point of view, London aluminum is currently operating in the rising channel, there is a huge support between 1750-1800, the market outlook will continue to rise. However, there is a huge resistance between the historical highs of 2000-2100 dollars in 1995, and it will be hard to exceed this range in 2005 when the global aluminum market will move into a bullish bear transition. And the rising edge of the rising channel formed a huge back pressure between 2000 and 2100. It is recommended to continue buying at 1750-1850 in early 2005; the target should be between 2000 and 2100. Once the period price breaks above the long-term support line from above 2000, the CBBC conversion pattern will begin to unfold; and an oscillatory top structure will be formed at the high level, and then a rebound short selling strategy will be adopted. Between 1870-1980 will be an excellent short-selling opportunity; the outlook for the down market will see around 1600. The 2005 London aluminum price forecasting simulation chart is shown in the right figure. In the technical form of the domestic market, the long-term support line (figure six red line) has formed strong support below 15500, but the mid-term downward trend line (figure six blue line) constitutes a huge back pressure above 16,500, and, from a time point of view, will Faced with a breakthrough. Taking into account the fundamental changes, the author tends to think that the possibility of a downward breakout is unlikely, and the market outlook will continue to rebound upwards and build the top shape. The target should be around 17000-17500; however, the subsequent downside break through the long-term support line will mean the end of the current bull market. In 2005, it is expected to see a target of 14500-15000. V. Conclusion In summary, the international market in 2005 will be a process of oscillating and topping. The transaction is recommended to buy between 1750-1850 and short sell near 2000-2100. Once the long-term support line is broken down, the long bear will start this way. After that, the short-term rebound will be the main tone. The head of the domestic market in 2004 has been basically clear, but there should be a wave of rally in 2005; trading strategy should buy long before falling below the long-term rising trend line, rebound in the 17000-17500 range; below the support line After the main short-term rebound will be.