SMM1, 30 March: in 2018, domestic electrolytic aluminum enterprises are once again facing the dilemma of losses in the whole industry, the inventory of aluminum ingots in circulation is high, bauxite resources are seriously poor, and the area of real estate completed in 2018 is not as expected. In 2019, can the aluminum consumption market in the construction sector improve, whether the inventory situation is still severe, what is the demand for alumina, and can recycled aluminum enterprises usher in new opportunities for development?
In recent years, the alumina industry in China has developed rapidly, and a small number of bauxite resources have begun to appear stretched, especially in Henan, Shanxi, and other places. Bauxite resources have begun to become seriously poor or even exhausted, and enterprises have begun to use low-grade ores. As a result, production costs have increased significantly, and some enterprises have even traveled thousands of miles to Guizhou to purchase bauxite.
It will be a trend for Chinese alumina enterprises to make use of overseas bauxite resources. The bauxite resources and alumina production capacity in China are seriously asymmetrical, and the bauxite resources have been guaranteed for less than 10 years. At the same time, the domestic ore quality has obviously declined, which has increased the cost of alumina production. Seeking foreign bauxite resources has become the consensus of alumina production enterprises in China.
Alumina: from shortage to surplus
There was a shortage in the alumina market in 2018 due to third-party supply disruptions and other factors in Brazil. Total alumina production in China was 70.479 million tons in 2018, up 3.01 per cent from a year earlier, according to SMM data.
Alcoa expects excess alumina production in China in 2019, driven mainly by the expansion of refineries, while economic and environmental factors have led to lower-than-expected smelting production. Outside China, the market is expected to be roughly balanced because of the expansion of the smelting business and the growth in demand.
Recently, the US Treasury announced the lifting of sanctions against Rusal (Rusal), owned by OlegDeripaska, which is also the parent company of the Aughinish alumina plant in the UK. The plant accounts for 1/3 of total alumina production in Europe.
In early March 2018, a Brazilian regulator asked Norwegian Hydro (Norsk Hydro) to halve its capacity at its Alunorte alumina smelter in Brazil until it complied with an environmental protection law. But the news of its actual production cuts has changed multiple times over the course of a year. On October 3 last year, Hydro announced that its alumina plant in Brazil was ready to shut down completely, but on January 16, 2019, the Environmental Protection Agency of the Brazilian state of Para issued a technical note. It is proved that Hydro Brazil's Alunorte alumina plant has the conditions for safe resumption of production, and the situation will be reversed again. Hydro still has the possibility of resuming production this year, and if the resumption plan falls to the ground, it will accelerate the global alumina overcapacity.
The growth rate of Electrolytic Aluminum production fell in 2018 and the situation of de-inventory in 2019 was still severe.
In 2018, under the influence of supply-side reform and heating season policy, the growth rate of electrolytic aluminum production declined, and the overall consumption growth rate exceeded the supply growth rate, thus contributing to the destocking situation. According to SMM data, China's electrolytic aluminum production grew by 3.9% in 2016 and 14.2% in 2017. In 2018, due to the expansion of production reduction and the speed of new production capacity lower than expected at the beginning of the year, the domestic electrolytic aluminum production of aluminum prices increased by-0.4%. As can be seen from the figure below, the inventory of electrolytic aluminum and aluminum ingots is still on the high side. Therefore, unless in the situation of excessive consumption of aluminum ingots, a large amount of inventory can be achieved, otherwise the high inventory of aluminum ingots in 2019 will become the new normal.
Overview of Aluminum consumption Market in Terminal-Construction Field
China's construction sector consumed 9.27 million tons of aluminum in 2018, down 2.18 per cent from a year earlier. 2018 was a year when the area of real estate construction in China was not as expected. According to the National Bureau of Statistics, in the first ten months of 2018, the completed area of real estate houses in China was 574 million square meters, down 12.52 percent from the same period last year. According to SMM, there are two reasons. First, the end of last year for the first time to start the heating season shutdown requirements, this year (2018) heating season production-limited real estate projects only after March 15 to resume work, the construction period was forced to delay; Second, in the context of deleveraging and tightening liquidity, real estate developers are particularly tight this year, some developers told SMM that in order to delay the payment of the project, they have taken the initiative to delay the construction period. In addition to the real estate sector, this year, the rural self-built housing market and shantytown transformation plate demand has shrunk. However, judging from the construction area and new construction area of real estate in the past two years, the area completed in 2019 is expected to increase, and we estimate that the aluminum consumption in the construction sector will be about 9.47 million tons in 2019.
Development of recycled Aluminum to meet important opportunities
Most of the recycled aluminum enterprises in China are relatively small. It is estimated that there are about 1000 recycled aluminum enterprises in China in 2014, mainly private and foreign (joint venture) enterprises, with a high degree of marketization and competition. Because of the high product homogenization of recycled aluminum enterprises in China, the main competitive factor among recycled aluminum enterprises is price. With the intensification of market competition and further standardization of the industry, some small enterprises have been eliminated, and the market concentration of recycled aluminum enterprises in China has been improved.
Due to the relative shortage of social ownership and supply of domestic waste aluminum, the above characteristics of the opportunity cost and accounting cost of waste aluminum have not yet been reflected in the price of waste aluminum materials, and there is still a lot of room for decline in the price of waste aluminum. With the arrival of the scrapping cycle of buildings, cars, machinery and equipment, the social ownership of waste aluminum is increasing rapidly. Once the relationship between supply and demand of waste aluminum is reversed, the price reduction space will be gradually opened. The main raw material market of recycled aluminum production enterprises is the seller's market, which is restricted by the relative shortage of waste aluminum materials, and the production and operation scale of recycled aluminum enterprises is limited to a certain extent. However, with the arrival of the buyer's market with sufficient supply, With the increase in the supply of waste aluminum materials and the decline in prices, the production scale of recycled aluminum enterprises is expected to increase.
There is still a big gap between China and developed countries in the consumption of recycled aluminum. Among them, the difference of recycled aluminum in transportation field is more than 20%, and the difference of recycled aluminum for packaging is more than 10% (the recovery and recycling of cans is almost zero). Therefore, there is still a lot of room for improvement in China's recycled aluminum consumption market, which is an important opportunity for the development of recycled aluminum.
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