SHANGHAI, Jan. 23 (SMM) – Chinese aluminum industry headed into severe losses in 2015 after prices tumbled to a relatively low level in the price history. However, the market staged a strong comeback in 2016 after production cuts and de-stocking in the industry.
What changes happen in Chinese aluminum market in 2016? SMM will give you a clear picture by summarizing changes in key parts.
Demand
With economic recovering both home and abroad, China’s demand growth in aluminum market is expected to reach 8.61 percent in 2016. Aluminum consumption in the construction sector, outperforming other sectors, is estimated to grow by 6.83% in 2016. Demand improvement has given a strong boost to aluminum price.
Inventory
Inventories of aluminum ingot were down sharply due to production cuts at domestic aluminum smelters after sluggish prices.
According to SMM data, domestic aluminum producers cut capacities by around 4.17 million tonnes in 2015, leading to a sharp drop in domestic inventories. As of late December 2016, inventories of aluminum ingot in China’s major trading markets dropped 52 percent to 324,000 tonnes, another major driver behind surging aluminum prices in 2016.
Costs
Production costs at domestic aluminum producers increased with rising prices of alumina and coal, and higher transportation fees after new transportation regulations. The average production costs at domestic aluminum producers climbed above 13,000 yuan per tonne (full costs), up 22 percent from the level seen in early year. The surge in costs also bolstered up aluminum prices.
Capacity and Output
With aluminum prices bouncing back, profits at domestic aluminum producers improved in 2016, promoting commissioning of new projects and coming back of closed capacities. According to SMM data, the number of restarted aluminum capacities in China exceeded 2 million tonnes in 2016, and that of newly-added capacities was more than 3 million tonnes, bringing operational capacities up to around 36 million tonnes, up 5.20 million tonnes from late 2015’s.
China’s aluminum capacities are expected to total 42.50 million tonnes (after being revised) for the whole year of 2016, with most capacities being released in the second half of the year.
China’s aluminum output is expected to reach 31.80 million tonnes in 2016, up 4 percent on a yearly basis, but the growth is the smallest since 2009. The growth of output is slower than that of capacity as most of newly-added capacities are expected to have been postponed to come online in 2017.
Proportion of Loss-Making Aluminum Producers
Tumbling aluminum prices led to industry-wide losses in Chinese aluminum market in late 2015, and the conditions turned around with aluminum prices rallying. According to SMM data, the average spot price of aluminum in China’s domestic market was 13,174 yuan per tonne in December 2016, incurring a loss-making proportion of 12.8 percent only.
To sum up, China’s aluminum output growth for 2016 is the lowest level since 2009, a big relief for Chinese aluminum market for the whole year. However, combined effect from newly-added capacities in H2 2016 and capacities under construction for 2017 will add to huge market supply pressures in 2017, especially when the market has just recovered from sluggish prices.
For more details, please see China Aluminum Industry Chain Report 2008-2018!
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