Market concern | Why are alumina prices in the doldrums?

Since the beginning of this year, the prices of most varieties of non-ferrous metals have reached new highs in nearly a decade, and the commodity supercycle has been heard endlessly. However, the price of alumina, a key raw material for electrolytic aluminum, has obviously failed to keep up with the rising cycle of commodities. Since 2020, the highest average price of alumina in China is still the 2609 yuan / ton set in March 2020, while the aluminum price has rebounded by 9000 yuan / ton compared with the lowest point of the epidemic, a huge increase. In contrast, the price of alumina has changed relatively little since last year, and there is a great contrast between the two prices. Most people believe that alumina overcapacity has led to persistent low prices. However, according to the author's analysis, overcapacity is not entirely the main reason for the low price of alumina, because alumina also has long-term idle capacity, if this part of capacity is removed, the start of alumina is not low, therefore, there are still other factors that keep alumina prices in the doldrums. The elasticity of alumina supply is relatively large. Alumina can not keep up with the price of electrolytic aluminum, and there is a big difference between the elasticity of supply and demand. At present, the demand of electrolytic aluminum for alumina is relatively rigid, and the cost of electrolytic aluminum to start and stop is too high, so there must be a stable supply of alumina in production. On the other hand, the production elasticity of alumina is relatively large, and the cost of stopping production is relatively low, which results in the oversupply of alumina under normal circumstances. At the same time, the alumina plant has considerable room for overproduction, which is an extra profit from the operation of the alumina plant, while the demand for alumina from electrolytic aluminum can not grow rapidly, although there is little change in the production capacity of both. However, the supply of alumina always tends to be loose soon, making it difficult for prices to rise continuously. The key to the large elasticity of alumina supply is the stable supply of raw materials. Without the guarantee of raw materials, alumina can not be overproduced. Thanks to the development of Guinean ore by Chinese companies, although there is a great shortage of domestic ore, the surplus of imported ore has greatly made up for the decline in domestic ore supply. In addition, since last year, the epidemic has not caused major problems in ore supply. The price of imported ore has remained stable, reaching less than US $50 / ton, and the price has dropped to a certain extent. Customs data show that in 2015, China imported about 55.89 million tons of bauxite, and by 2020, China's imports of bauxite increased to about 110 million tons, basically doubling the growth. The amount of ore from Guinea increased from 0 to more than 40 million tons during this period. In the same period, according to the data of the National Bureau of Statistics, China's alumina production has increased by only 24% to 73.13 million tons, reflecting that great changes have taken place in the ore supply structure of domestic alumina production in recent years. However, with the gradual deepening of policies such as supply-side structural reform, environmental protection and carbon emissions, the supply elasticity of alumina will also begin to decline. Since the beginning of this year, the requirements of domestic environmental protection are getting higher and higher, and some alumina production and ore mining are facing production limitations. at the same time, the early warning of heavy pollution weather has also limited the production of alumina industry in the north, resulting in unstable production of alumina plants in winter. especially for domestic mining-based enterprises, the situation of ore supply in winter is more severe. In addition, the transfer of alumina to the coast faces more stringent site selection requirements, which is confirmed by the suspension of five alumina projects with a cumulative total of 25 million tons in Liaoning in August 2018. In the future, if we strengthen the regulation of alumina production capacity, it is bound to increase the pressure of domestic alumina supply, and the demand for imported alumina will increase. Alumina has little capital participation Apart from its fundamentals, the influx of speculative funds such as futures has also played an important role in the sharp rise in electrolytic aluminum prices this year. From the capital level, the supply and demand pattern of alumina is stable, with little speculative capital participation. Before the supply-side structural reform was carried out in the electrolytic aluminum industry, because the domestic electrolytic aluminum was in a period of rapid expansion and overcapacity, the demand for alumina expanded and contracted very frequently, resulting in an unstable supply and demand environment of alumina. There is a large arbitrage space between spot and long orders, and the proportion of spot transactions is quite high, which attracts a large number of trade funds to enter the market for speculation. Such frequent spot transactions have led to a particularly active trading market and boosted the price trend. However, with the supply-side structural reform, the momentum of rapid expansion of electrolytic aluminum has been curbed, the demand structure of alumina gradually tends to be stable, the spot and long-term arbitrage space of alumina is weakened, and the supply and demand sides are more inclined to long-term transactions, thus squeezing out the room for traders. In addition, at present, the alumina industry is facing the pressure of overcapacity, especially the electrolytic aluminum industry is gradually entering the "ceiling" stage of production capacity, and the trend of competition for alumina stock is becoming more and more intense, which makes the price in a depressed state for a long time. It is more difficult to attract trade funds to the market. Attracted by the advantages of high grade imported ore, stable supply and low production cost, the upsurge of domestic alumina construction has not cooled down. at present, the production capacity of alumina under construction and preparation is still as high as 20 million tons, and a number of projects will be put into production this year and next year. Can the rise in alumina prices be sustained? Since May, under the dual influence of the sharp upward cost of alumina production and the production reduction of some alumina enterprises in the north, the price of alumina has finally risen, but the increase is much lower than that of electrolytic aluminum, and in the later stage, it is still difficult for alumina prices to rise to a large extent and the market is overheated. According to the analysis, this round of price rise is neither a demand-driven rise nor a supply-shrinking rise, but a cost-supported rise, but the shortage of coal is not enough to suppress alumina production for a long time. On the one hand, there is a lack of strong expectations for a decline in supply, and the overall loose situation of ore supply has not changed in the short term. Although domestic mines still face gaps from time to time, a considerable part of the production capacity has been converted to imported ore production, and the ore supply is relatively stable. The situation of ore shortage and shutdown will not be too great. In addition, in terms of new production capacity, Chongqing Jiulong Wanbo New Materials Phase I and Phase II totaled 1.8 million tons were put into production during the year. On the other hand, from the perspective of alumina demand, there is little room for demand growth. Power cuts in southwest China this year have caused a large reduction in electrolytic aluminum production, the amount of new capacity expected to be put into production this year is relatively low, and most of the idle capacity of electrolytic aluminum is already starting to resume production, and there is not much room for subsequent resumption of production, so the possibility of increasing electrolytic aluminum production capacity during the year is not high, still less can it promote the rise of alumina market prices.