I. Global economic recovery in April and April (1) Domestic macroeconomic overview In mid-May, China’s macroeconomic data was released. From the perspective of these data, the domestic economy as a whole maintained its growth momentum, and the industry’s industrial added value in April totaled 544.7 billion yuan year-on-year. 16%, total retail sales of social consumer goods was 466.3 billion yuan, an increase of 12.2% over the same month of last year, and residential investment was 263.4 billion yuan, an increase of 22.3%. The investment in real estate development was 340.5 billion yuan, an increase of 25.9%. The obvious signs of overheating in the first quarter have been somewhat restrained. In April, the overall level of consumer prices rose 1.8% from the same month of last year, a decrease of 0.3% compared with March. Regarding the macroeconomic trend in the second quarter, the Department of Economic Forecasting of the National Information Center believes that the general trend of a slight fall in economic prosperity and cooling of domestic demand will not change. It is expected that China's economic growth in the second quarter of this year will be 9.1 percent, a drop of 0.5 percentage points from the same period of last year. At the same time, the year-on-year decline in the CPI index will provide a basis for further delays in policy hikes. (II) Expectation of the appreciation of the renminbi is negated As the high-level government officials frequently state their renminbi exchange rate policies, the buoyant renminbi appreciation expected in April has been rejected. In the speech of the Prime Minister on the exchange rate issue, the maintenance of the RMB exchange rate policy has been elevated to the height of national sovereignty. Afterwards, on May 20th, 148 kinds of textiles were introduced and increased their export tariffs. The market generally believed that this measure of the policy side was obviously a prescription for relieving the pressure of RMB appreciation, and it was not difficult to see that the policy side would rather restrain the country’s main Exports of export goods to relieve the pressure of appreciation of the renminbi, but also do not want to touch the exchange rate system itself. (III) U.S. Economic Situation U.S. Economy Reverses the Decline of March In mid-to-late May, U.S. economic data were released in April, and the retail industry index and the number of people employed rose substantially. This temporarily temporarily sets expectations for the economic slowdown in the previous market. The full stop. On May 12, the U.S. Department of Commerce, in the past April, the total retail sales of the United States climbed by 1.4%, which is the highest point in six months. On May 6, the US Department of Labor, in April, the number of non-farm payrolls in the United States increased by 274,000, which is higher than the 175,000 expected by analysts and is expected to be only 170,000. In April, the number of new housing starts increased by 11%, which is equivalent to an annual rate of 2.038 million sets, a sharp contrast with the situation in March. However, the consumer price index rose by only 0.5%, which is lower than market expectations. The core consumer price index after deducting energy and food was zero, which was the first time since November 2003. Manufacturing output fell for the third consecutive month, with the output value of the automotive industry falling by 3% and the value of furniture, household appliances and carpet weaving industry down by 2.5%. The rate hike cycle continues for April. The U.S. wholesale price index rose by 0.6%, more than Wall Street’s previous forecast, mainly because crude oil prices remained high. The consumer price index rose by only 0.5%, lower than market expectations. The core consumer price index after the deduction of energy and food was zero, which was the first time since November 2003. The slowdown in CPI growth may postpone the Fed’s rate hike pace. On May 2, the Fed raised the interest rate by 25 basis points to 3.0%, which is the eighth rate increase since June of last year. The current market is widely expected that the Fed will continue to raise interest rates in the coming months and interest rates will rise to 4.0% by the end of 2005. For the Fed, step-by-step monetary policy of raising interest rates is a magic weapon that sustains economic growth but is not too hot. (D) The sharp appreciation of the dollar in the short-term trend of the euro against the US dollar Since April, the US dollar has maintained a strong appreciation trend against major international currencies. Among them, the dollar has appreciated against the euro by a relatively large margin from the euro against the US dollar on May 2: 1: 1.2862 plummeted to 1:1.2305 on May 31, and the US dollar appreciated by 4.5%. In addition, the US dollar against the Japanese yen also saw a large increase over the same period. The U.S. dollar index shows that the general appreciation of the U.S. dollar against major international currencies led to a sharp rise in the U.S. dollar index, which rose from 84.48 U.S. on May 2 to 88.78 on May 31, an increase of 5%. Looking at the long-term decline in the U.S. dollar index since the beginning of 2002, the prudent view is that the U.S. dollar exchange rate is currently in a rough rebound and it is still difficult to confirm whether the rebound can be converted into a long-term surge, but if it breaks through May 2004, The high point of 92.29, the long-term appreciation of the dollar may be slightly optimistic about the prospects. Second, the electrolytic aluminum market trend in May review Shanghai electrolytic aluminum futures price charts LME aluminum charts Since April, LME aluminum experienced a large medium-term adjustment trend, the price from the mid-April high of 1989 US dollars / ton fell To the mid-May low of 1,704 US dollars / ton, a decrease of 14%; but during the same period, the price of Shanghai aluminum futures and domestic spot aluminum ingots remained at a level of between 16600-17,000 yuan / ton for horizontal shocks, relative changes in the trend of domestic aluminum Ingots have improved their discounted status on international aluminum ingot prices. As for the reasons for the sharp decline in LME aluminum prices since April, the main factors that can be considered are the continuous appreciation of the US dollar. The continuous appreciation of the U.S. dollar on the one hand led to a drop in the price of commodities marked in U.S. dollars. On the other hand, U.S. fund long net positions were temporarily withdrawn from the commodity futures market, including the aluminum futures market. The prices of domestic futures and spot aluminum ingots fell sharply as early as in the second quarter of 2004. After that, they maintained a discount of US$70-80/ton with the international aluminum ingot prices. Therefore, LME fell sharply on the domestic market. Basically no effect. Comparison of LME Aluminum and Shanghai Aluminium Prices Figure III. Electrolytic Aluminium Market Outlook (A) Domestic Alumina Industry Has Suppressed by Macroeconomic Policy Domestic Macro Surface Since April 2004, a series of overheated investment in alumina processing industry has been introduced. In terms of currency and even administrative policies, the Shanghai Aluminum futures, once active in the previous period, have declined sharply since then, and fell in tandem with spot aluminium ingots, falling from 18,000 yuan/ton to 15,000 yuan/ton. After the slump, from May 2004 to March 2005, domestic aluminum prices and international prices maintained a high degree of linkage and a stable discount rate, but since April 2005, with the international aluminum prices The price of aluminum in the domestic market has been greatly reduced. At present, the state's partial regulation of the alumina processing industry continues. In May, the market generally rumors that the preferential tariff policy for alumina processing trade will be cancelled in June. In China's annual import volume of more than 6 million tons of alumina, processing trade accounts for 80% and domestic demand only accounts for 20%. There are many reasons why the policy area is heavily involved in the alumina processing industry: 1. The alumina processing industry consumes huge amounts of electricity. In recent years, the concentrated areas of alumina processing companies have caused local electricity shortages and coincided with energy consumption. Since the reforms and opening up, there has not been a single industry that has seen such an industry as the expansion of the alumina industry. This has brought such great pressure on the macro-scale infrastructure construction and the sticky side of the policy is bound to fall into this industry. 2. The alumina processing industry is heavily polluted. Especially attracted by the enormous profits of the processing and trading industry in the past few years, small alumina processing companies throughout the country have mushroomed and have caused great damage to the local natural environment of enterprises. Continuing development greatly contradicts. 3. It is also the main reason why the policy side is determined to impose a heavy knife on the aluminum industry. That is, the alumina processing industry is similar to the domestic steel industry, with low technology content, low added value, and high power consumption and serious pollution. Therefore, the alumina processing trade was dubbed the “China Energy Loss†industry by the market. (II) The strong demand for aluminum is closely linked with the rapid development of the macro economy. However, aluminum ingot producers have been pressured. The direct result is that aluminum ingot prices remain high. Taking Shanghai Futures Aluminum as an example, the current spot monthly contract price of AL0506 is still in the high price range since 1997. The reason for this is the strong domestic and international demand for aluminum ingots. From January to April in 2005, the consumption of aluminum in China was 2.180 million tons, an increase of 11% over the same period of last year. Although the increase was smaller than the same period of last year, the total consumption still maintained a relatively high growth momentum. On the export side, according to the data of the General Administration of Customs, the export volume of aluminum increased by 24.9% from January to April. The sustained and substantial increase in aluminum demand has benefited from the continued improvement in the international and domestic macroeconomics, especially the continued improvement of the US economy and the booming development of domestic aluminum, automotive, and electromechanical and real estate industries. During the period of LME aluminum reversal in March, Alcoa, the world’s second-largest aluminum producer, said that despite the recent decline in aluminum prices of 14%, the aluminum market’s demand is still greater than supply, and the global aluminum consumption trend in 2005 is forecasted. There is no substantive change. Global aluminum demand will increase by 4.3% in 2005. However, the supply gap in aluminum market in 2005 will be reduced to 200,000 tons, which is less than the 685,000 tons in 2004. (3) The smelting bottleneck will continue to affect the smelting bottleneck problem of aluminum ingot supply to the alumina processing industry. As early as 2004, the alumina processing industry experienced an oversupply in the alumina market and the electrolytic aluminum market was in short supply. In 2005, this situation continued. Although large-scale international and domestic refineries have expanded their production capacity, the improvement of production capacity can be completely resolved in the short term. (4) There are four reasons why the price of electrolytic aluminum is apt to rise: (1) First, it comes from the policy side. The purpose of the state's focus on the alumina processing industry is to control the over-expansion of the industry by limiting the new investment in the industry. In order to avoid putting too much pressure on the domestic infrastructure, the direct result of this purpose is to control the output of electrolytic aluminum. It can be seen that the policy side is not trying to suppress the price of aluminum ingots. On the contrary, it wants to raise the price of aluminum; on the other hand, Large-scale electrolytic aluminum plants with large power consumption and serious pollution were shut down, reshuffling the alumina processing industry, forcing companies to reduce costs, improve efficiency, and increase production capacity from their own technologies. A large alumina processing company with a high level of technology, high efficiency, and high output. 2. The demand for electrolytic aluminum in the international and domestic markets is still strong, and the continued improvement in the global macro economy provides assurance for aluminum prices. This point can be proved by the fact that the aluminum technical price of LME has fallen sharply and the country is not affected. 3. The existence of bottlenecks in domestic smelting will affect the supply of international aluminum ingots. This situation is difficult to change in the short term. 4. There is no substantive basis for the long-term appreciation of the US dollar and commodity prices will remain high. 5. LME electrolytic aluminum prices started to stabilize and pick up. Domestic aluminum prices have greatly eased the situation of international aluminum price premiums. Based on this, domestic aluminum prices are expected to follow the international aluminum prices and move out of the market substantially. Conclusion: Based on the above analysis, our view on China's aluminum market is that the price of electrolytic aluminum is apt to rise and fall, and it is expected to rise substantially in the mid-term with LME aluminum.