Decline in Alumina Prices Accelerated amid Deteriorating Fundamentals

SHANGHAI, Jun 13 (SMM) - As of last Friday, the SMM weighted alumina index stood at 2,964 yuan/mt, down 23 yuan/mt from a week ago. The prices stood between 2,950-3,050 yuan/mt in Shandong, 3,000-3,070 yuan/mt in Henan (with the average down 25 yuan/mt), 2,850-2,910 yuan/mt in Shanxi (with the average down 25 yuan/mt), 2,950-3,020 yuan/mt in Guangxi (with the average down 5 yuan/mt), 2,890-3,010 yuan/mt in Guizhou (with the average down 40 yuan/mt), and 3,100-3,150 yuan/mt in Bayuquan.

Two transactions were heard from the overseas market last week. A deal for 30,000 mt of alumina was done at $360/mt FOB Western Australia on June 7, for shipment in early July, and the destination was unknown. Another deal for 30,000 mt of alumina was done at $366/mt FOB Western Australia on June 10, for shipment in early August, and the destination was also unknown. Overseas alumina prices began to stop falling and even rebounded slightly. As of last Friday, alumina prices stood at $360/mt FOB Western Australia, equivalent to 3,320 yuan/mt CIF major ports in China, which was 356 yuan/mt higher than the domestic spot prices. The ocean freight increased by another $2/mt to $68/mt.

SMM data showed that China’s metallurgical-grade alumina output stood at 6.96 million mt in May. The daily average output was 224,400 mt, up 12.16% on the month and 12.02% on the year. The Hebei Wenfeng alumina project is currently running at 2.4 million mt/year, and released output in May, which somehow shocked the spot market in north China. The Chongqing Wanbo alumina project is operating at 3.6 million mt/year, with another 1.2 million mt/year to be put into operation in the future, which will make more alumina available in the spot market in south-west China. Buyers and sellers were further divided over their views on future alumina prices. Due to the shortages of bauxite, rising caustic soda prices, and high operating costs, alumina refineries’ profits are constantly being eroded. Alumina refineries supply mainly under long-term orders, and will not dump goods into the spot market unless they face huge inventory pressure. Traders usually choose to stand on the sidelines when market prices are in a downward trend. With stable supply under long-term orders and the passing of the Dragon Boat Festival, aluminium smelters now have little extra need for alumina.

SMM estimates that China saw a net export of 150,000 mt of alumina in May and a surplus of 193,000 mt in the month. The market has reversed from a supply deficit to an oversupply, sending alumina prices lower. With a tremendous amount of new alumina capacity being put into operation at a faster pace, the market will remain in a surplus in the long run. Should the alumina prices continue to fall, the high-cost alumina refineries in Shanxi and Henan will face mounting pressure to slash their output.