SMM Interpretation of Surging SHFE Aluminum after Capacity Cut Rumor in Henan, Shandong and Shanxi

Published: Jan 13, 2017 14:10 (GMT+8)
SHFE 1703 aluminum jumped at the tail of trading on January 12 and finally closed daily trading up by 2.47 percent. The same day, one rumor of capacity cuts disturbed the market.

SHANGHAI, Jan. 13 (SMM) – SHFE 1703 aluminum jumped at the tail of trading on January 12 and finally closed daily trading up by 2.47 percent. The same day, one rumor of capacity cuts in major aluminum and alumina producing regions disturbed the market.

It was rumored on Thursday’s afternoon that Henan, Shandong and Shanxi plan to cut aluminum capacities by 30 percent, and reduce alumina capacities by 50 percent. However, the three provinces mentioned above release no official statement on capacity cuts, SMM learns.

Buy The Rumor, Sell The Fact in China Aluminum Market? SMM Exclusive

At present, aluminum capacities in Shandong, Henan and Shanxi are 11 million tonnes, 3.84 million tonnes, and 1.04 million tonnes, respectively, with the three accounting for 37.7 percent of China’s total, and alumina capacities in the three regions were 23.50 million tonnes, 12.65 million tonnes and 19.95 million tonnes, respectively, accounting for 77.9% of China’s total, according to SMM data.

“Market speculations on the rumor add fuel to the flame, and growing market expectations over aluminum de-capacity serve as the fundamental reason behind the surge,” SMM aluminum analysts points out. 

Recently, Xu Shaoshi, director of National Development & Reform Commission, and Xiao Yaqing, Chief of the State-owned Assets Supervision and Administration Commission of the State Council both said to push forward capacity elimination in the sectors with overcapacities in 2017, such as nonferrous metals, shipbuilding, refining, building materials and power. The domestic aluminum industry has got much more attention than other nonferrous metals, as the sector faces obvious capacity surplus pressures.

“China’s aluminum sector has made great progress in eliminating inefficient capacities after big efforts in recent 5 years, and its standard rate and production scale make aluminum sector big different from ferrous metals,” SMM says.

The number of domestic aluminum producers has dropped from more than 150 to about 80 after capacity elimination. Meanwhile, aluminum sector also outperforms other nonferrous metals in the aspect of newly-added consumption areas. Hence, market speculations that capacity cuts in the aluminum sector may duplicate those in the ferrous metal sector are overdone.

According to SMM data, China’s aluminum output grew to 2.95 million tonnes in December 2016, a record high of monthly output, up 18.6 per cent year-on-year. As of this Thursday, inventories of aluminum ingot in China’s five major aluminum trading markets were 355,000 tonnes, up 12,000 tonnes on a weekly basis. And inventories are expected to keep growing with easing of transportation capacity in Xinjiang. On the demand side, demand for air-conditioning aluminum foil, light gauge foil and some industrial products is strong, but consumption from construction sector is down sharply on a yearly basis in 2016, raising market worries over demand from the major aluminum consumer.

For details of utilization rates at aluminum processing producers, please see SMM Aluminum Monthly Report, and China Aluminum Industrial Chain Annual Report 2008-2018 is also available NOW!

For news cooperation, please contact us by email: sallyzhang@smm.cn or service.en@smm.cn.

Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM's internal database model. They are for reference only and do not constitute decision-making recommendations.

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