1. Current situation

On May 29, the State Council issued the "2024-2025 Energy Conservation and Carbon Reduction Action Plan", which involves multiple industries. For the non-ferrous metals industry, the plan puts forward the following requirements: Optimize the layout of non-ferrous metal production capacity. Strictly implement the replacement of electrolytic aluminum production capacity, strictly control the new production capacity of copper, alumina and other smelting, and rationally layout the new production capacity of silicon, lithium, magnesium and other industries. Vigorously develop the recycled metal industry. By the end of 2025, the proportion of recycled metal supply will reach more than 24%, and the proportion of direct alloying of molten aluminum will be increased to more than 90%. Newly built and expanded electrolytic aluminum projects must reach the energy efficiency benchmark level and environmental performance A level, and the energy efficiency of newly built and expanded alumina projects must reach the advanced value of the mandatory energy consumption limit standard. The energy efficiency of newly built polysilicon and lithium battery positive and negative electrode projects must reach the advanced level of the industry.

After the announcement of the plan, the domestic commodity market, led by nonferrous and ferrous metals, saw unusual market movements. Shanghai Aluminum surged to a two-year high in the night session on the 29th, driving the upstream raw material alumina to follow suit, which stimulated the market's bullish sentiment for a while. However, as the market sentiment was digested, Shanghai Aluminum and alumina both experienced a continuous correction.

2. Policy Retrospection

In the context of achieving the "dual carbon" goal, relevant policy documents have been issued in recent years to guide and promote the energy conservation and carbon reduction development of the aluminum industry. Here, this article briefly sorts out the relevant policy documents related to energy conservation and carbon reduction in the non-ferrous aluminum industry in recent years:

It can be seen that in terms of content, this "Plan" is more of a reaffirmation of the various goals proposed previously, and no new content is proposed. Considering the background of the proposal of this "Plan", in December 2023, the mid-term evaluation report on the implementation of the "Outline of the 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Long-Term Goals for 2035" pointed out that "the realization of two indicators, namely, the reduction of energy consumption per unit of GDP and the reduction of carbon dioxide emissions per unit of GDP, lags behind expectations", and faces the challenge of "the growth rate of energy consumption and carbon dioxide emissions is significantly faster than that of the "13th Five-Year Plan" period", and proposed that for the indicators that lag behind the progress, "policies should be optimized and adjusted, and the greatest efforts should be made to promote the completion of planning goals. Among them, for binding indicators such as the reduction of energy consumption per unit of GDP, the reduction of carbon dioxide emissions per unit of GDP, and the ratio of days with good air quality in cities at the prefecture level and above, it is necessary to further improve the energy consumption and carbon emission intensity control policies, resolutely curb the blind launch of high-energy-consuming, high-emission, and low-level projects, strictly and reasonably control the total amount of coal consumption, vigorously promote energy-saving and carbon reduction transformation in key areas, and accelerate the implementation of key emission reduction projects for major pollutants".

A relevant person in charge of the National Development and Reform Commission also issued a document on May 29, stating that preliminary estimates show that after deducting raw material energy consumption and non-fossil energy consumption, the national energy intensity has decreased by about 7.3% in the first three years of the 14th Five-Year Plan. While ensuring the energy demand for high-quality development, it has saved about 340 million tons of standard coal in fossil energy consumption and reduced carbon dioxide emissions by about 900 million tons. However, at the same time, affected by factors such as the COVID-19 pandemic, the reduction of national energy intensity is still lagging behind the schedule, and the situation of energy conservation and carbon reduction in some regions is relatively severe.

Although the content of this "Plan" has rarely been updated, the time frame has been clarified, namely 2024-2025. To a certain extent, this may also imply the urgency of completing the delayed expected indicators in the future. In the future, various regions and industries may further accelerate the implementation of relevant policies and measures, and the time pressure for energy conservation and carbon reduction in the aluminum industry will increase.

3. What impact will the “Plan” have on the aluminum industry chain?

As for the impact of the Plan, it can be analyzed from two aspects: direct impact and indirect impact. The requirements for the non-ferrous metal industry in the Plan will directly affect the future production capacity of the aluminum industry chain and the supply and demand situation of each link. In summary, it is mainly reflected in the following three aspects: stricter control of new alumina production capacity; continued rigidity of electrolytic aluminum supply, and a decrease in the amount of aluminum ingot casting; and increased demand for scrap aluminum.

Specifically, under the requirements of the Plan, the entry threshold for new domestic alumina production capacity will be tightened, and new production capacity will be strictly controlled in the future. The domestic alumina overcapacity may be alleviated to a certain extent. Coupled with the tight supply of domestic bauxite, the new alumina production capacity may be more inclined to be deployed overseas in the future, but it will have little impact on the existing overall operating capacity. For electrolytic aluminum with existing production capacity red lines, the high-energy-consuming electrolytic aluminum production capacity that does not meet the standards will be further cleared. At the same time, it also makes the market once again clearly realize that the 45 million tons of electrolytic aluminum production capacity red line will be firm, and the rigidity of aluminum supply will exist for a long time. As the alloying ratio of aluminum water increases, the casting volume of aluminum ingots will further decrease. This will become a long-term positive support for aluminum futures that use aluminum ingots as standard delivery products, and it will also make the market face the risk of instability of the "ballast stone". In addition, under the requirement of recycled metal supply ratio, the demand for scrap aluminum will increase. However, due to the small amount of industrial scrap aluminum produced in my country and the imperfect recycling system, scrap aluminum is currently in short supply. According to data from the General Administration of Customs, the cumulative import volume of domestic scrap aluminum from January to December 2023 was 1.7518 million tons, a year-on-year increase of 15.61%. Under the requirement of recycled metal supply ratio, recycled aluminum with scrap aluminum as raw material will become an important supplement to the overall aluminum supply in the future, and may also intensify the competition for recycled resources such as aluminum and the competition for global industrial transformation and upgrading.

In addition to the above direct requirements for the non-ferrous metals industry, it is also necessary to consider the indirect impact that the requirements for other aluminum-related industry sectors in the Plan will have on the aluminum industry.

The plan also proposes to "strictly and reasonably control coal consumption", which will be related to the energy problem of electrolytic aluminum production capacity operation. Previously, the "Implementation Plan for Coordinated Efficiency Improvement of Pollution Reduction and Carbon Reduction" jointly issued by the Ministry of Ecology and Environment, the National Development and Reform Commission and other seven departments in June 2022 also proposed that the proportion of renewable energy used in electrolytic aluminum will be increased to more than 30% by 2030. The EU's "carbon tariff" has officially entered the trial operation stage in October 2023 and will be officially operated in 2026. Although the scope of coverage has not yet covered aluminum, it has been included. In March 2024, the Ministry of Ecology and Environment successively released the draft guidelines for greenhouse gas emission accounting and reporting of enterprises in the aluminum smelting industry and the cement industry and the draft technical guidelines for greenhouse gas emission verification of enterprises, sending a certain signal to the market that the aluminum smelting industry is likely to be the second batch of industries included in the national carbon market. Superimposed on the recent corporate symposium, the issue of deepening the reform of the power system was also discussed in detail. This means that under multiple pressures, it will be more urgent to reduce carbon emissions from thermal power generation in the future. The price of coal-fired power with high carbon emissions may hardly have a cost price advantage. The market-oriented reform of electricity prices will further increase the volatility of electricity prices, thereby increasing the instability of electricity costs and gradually affecting the benefits of enterprises. In the future, the deepening of power system reform will jointly clarify the direction of transformation and upgrading of the non-ferrous industry with this energy-saving and carbon-reduction plan. Considering that it will take a long time to implement energy-saving and carbon-reduction actions, it is expected that the short-term market will gradually transmit from the serious alumina capacity and the carbon reduction upgrade of electrolytic aluminum smelting, and push up the prices of alumina and electrolytic aluminum.

In addition, the relevant content of the "Plan" on the action to increase non-fossil energy consumption will affect the aluminum industry from the demand and consumption side. The "Plan" proposes to "accelerate the construction of large-scale wind power and photovoltaic bases focusing on deserts, Gobi and wastelands", "gradually cancel restrictions on the purchase of new energy vehicles in various places. Implement support policies such as facilitating the passage of new energy vehicles", which means that the photovoltaic and new energy vehicle industries will continue to improve with policy support in the future. With the advancement of energy transformation in recent years, the proportion of aluminum used in photovoltaics and new energy vehicles in the overall demand for aluminum has continued to increase, making up for the decline in traditional demand such as aluminum for construction, and becoming an important support for aluminum demand. According to data from the China Optical Association, the country's new photovoltaic grid-connected installed capacity will be 216.88GW in 2023. The cumulative photovoltaic grid-connected installed capacity exceeds 600GW, and both the new and cumulative installed capacity are the first in the world. It is estimated that the new photovoltaic installed capacity will exceed 200GW in 2024, and the cumulative installed capacity is expected to exceed 810GW. According to the forecast of China Automobile Association, the total automobile sales in my country this year will exceed 31 million, with a year-on-year growth of more than 3%; among which, the sales of passenger cars will reach 26.8 million, with a year-on-year growth of 3%; the sales of commercial vehicles will reach 4.2 million, and the sales of new energy vehicles are expected to reach 11.5 million, and the overall automobile exports are expected to reach 5.5 million. Under the emphasis of the Plan, photovoltaic and new energy vehicles will further become a strong support for aluminum consumption in the future.

4. Outlook for the Future

Judging from the trend of aluminum prices, the release of the "Plan" caused a short-term emotional fluctuation. Since the indicators covered by the "Plan" have not changed significantly, the market's bullish sentiment has gradually been digested, and aluminum prices have also shown a trend of rising and falling. Based on the above analysis, it can be seen that the "Plan" will have more impact on the long-term development trend of the aluminum industry, and the impact on the current supply and demand is limited. In the future, under the pressure of energy conservation and carbon reduction, the layout of alumina production capacity will be further optimized, aluminum supply will remain rigid, and the pressure of electricity cost fluctuations may gradually be reflected in prices. The demand structure will further transform, and the new energy sector will strengthen its support for aluminum demand. In the long run, the center of gravity of aluminum prices may gradually rise.

On the other hand, although the supply and demand at this stage have not been affected by the "Plan", considering the background of the release of the "Plan" and the urgency of achieving the expected goals, it is expected that the specific implementation stage will gradually be entered in various places and industries in the future. The impact of the policy on the aluminum price is temporarily difficult to disprove, and it will take time to observe the effect after it is implemented in local areas and industry enterprises. In addition, the current market funds' attention to the commodity market has not completely faded. Aluminum's rise in this round of commodity fluctuations led by gold, silver, and copper also appears to be relatively moderate. In the case that precious metals and copper have set new highs and gradually entered the adjustment stage, it is not ruled out that topics such as energy conservation and carbon reduction will once again attract funds to the aluminum market. Aluminum prices may be easy to rise but difficult to fall, so avoid short selling without goods.