Alumina Prices in South-West China Began to Fall, Price Difference Between North and South China Likely to Widen

SHANGHAI, Feb 20 (SMM) - Price review: The SMM weighted alumina index stood at 2,946 yuan/mt as of last Friday, down 4 yuan/mt from a week ago. The prices stood between 2,890-2,950 yuan/mt in Shandong (-5 yuan/mt), 2,960-3,030 yuan/mt in Henan, 2,960-2,990 yuan/mt in Shanxi (+5 yuan/mt), 2,820-2,920 yuan/mt in Guangxi (-20 yuan/mt), 2,840-2,920 yuan/mt in Guizhou, and 3,000-3,050 yuan/mt in Bayuquan.

Overseas market: Alcoa announced in early January that the production at its Kwinana alumina refinery in Australia would be cut by 30% due to natural gas shortages, affecting about 700,000 mt/year of capacity. The idled capacity at Kwinana had not been resumed as of last week. Short supply in the overseas spot market kept alumina prices FOB Western Australia at highs of $371/mt, which was equivalent to about 3,129 yuan/mt CIF China. The import window remained closed.

Domestic market: Alumina prices in Guangxi took the lead in correcting down, while prices in north China stabilised. Alumina refineries in Guangxi were worried that the power shortage-induced production cuts by aluminium smelters in Yunnan would threaten the demand for alumina. They thus rushed to sell, sending local mainstream transaction prices down by 20 yuan/mt to 2,850 yuan/mt. In north China, alumina refineries were required to restrict their roasting capacity so as to fight heavy air pollution, forcing some refineries to seek cargoes from the spot market to deliver their long-term orders. Buoyed by tight supply and high costs, the transaction prices in north China rose 5 yuan/mt to 2,960-3,000 yuan/mt.

Alumina prices are now mainly subject to the fundamentals. Alumina production resumption plans in south-west China (1 million mt/year at State Power Investment Wuchuan and 300,000 mt/year at Guizhou Galuminium) and estimated cuts of 800,000 mt/year of aluminium capacity in Yunnan will hit the alumina market. Alumina prices in south-west China will be vulnerable to further decline in the short term. In contrast, alumina prices in Shanxi and Henan will stay at highs under the support of low operating rates and high costs, but may lose upward momentum once the restricted roasting capacity resumes.

The current price difference between north and south China is 105 yuan/mt, leaving no room for cross-regional arbitrage as the average freight rates between the two regions are as high as 180-220 yuan/mt. Should the price difference expand to 180-220 yuan/mt, the surplus alumina in south China will flow into north China, which will bring down the local prices by then.