SMM Analysis of Four Important Drivers Behind Soaring Alumina Prices

SHANGHAI, Sep 10 (SMM) - Domestic alumina prices have repeatedly hit this year’s new highs recently amid brisk trades, with no signs of retreat in the foreseeable future. As of September 9, the SMM weighted average alumina price index stood at 3,189 yuan/mt. The average prices in north and south China were 3,225 yuan/mt and 3,000 yuan/mt respectively.

The overall price trend this year can be divided into three stages: the first stage (January 1-July 20) saw an increase of 6.46%. The second stage (July 21-August 27) saw an increase of 12.58% as higher cost boosted prices in north China and prices in south China followed suit. The third stage (August 30-September 9) recorded an increase of 432 yuan/mt or 10.04%, driven by production cuts in China and overseas, and political turmoil in Guinea.

SMM attributes the surge in alumina prices to four factors.

1. Higher cost

According to SMM’s estimates, the current full cost of alumina plants are about 2,800 yuan/mt in Henan, 2,700 yuan/mt in Shanxi, 2,400 yuan/mt in Guizhou, 2,300 yuan/mt in Guangxi, and 2,250 yuan/mt in Shandong. Domestic bauxite mining has been affected by environmental protection inspections, safety checks, and mine rectifications since April this year, allowing bauxite prices to gradually move up. Meanwhile, prices of coal and caustic soda remain high, resulting in higher alumina costs. This situation is particularly prominent in north China. As such, alumina prices in the north have been climbing since July, and prices in south-west China have followed suit.

2. Output cuts in China and overseas

Three alumina plants in Guangxi began to reduce output on September 9 after the environmental protection inspection team has arrived, which involves a total capacity of 3 million mt/year, accounting for 25.6% of the total existing alumina capacity in the province. The market reacted quickly to the output cut news, even though capacity is not cut by half.

In the overseas market, Alcoa's Alumar alumina plant, which has an annual capacity of 3.5 million mt, slashed production by one-third in mid-July due to technical problems, affecting approximately 1.2 million mt of annual capacity. In addition, the Jamalco alumina plant in Jamaica, which has an annual capacity of 1 million, halted production on August 23 following a fire. Chances are small for these two alumina plants to resume production in the short term, which is estimated to affect monthly output by 87,000 mt. Supply disruptions and high ocean freight left overseas buyers more willing to purchase, pushing prices up. Australian alumina prices stood at $381.1/mt FOB on September 9, an increase of nearly $60/mt from the beginning of the month. Rising prices overseas also contributed to the upward trend of domestic alumina prices.

3. Soaring aluminium prices

Aluminium prices hit a high of 22,000 yuan/mt due to supply disruptions, expanding profit at smelters to 5,000 yuan/mt. It is easier for smelters to accept higher alumina prices after their profit has increased.

4. Firm offers by alumina plants and more active purchases by traders

Alumina plants, especially those in north China, kept raising quotes after struggling with losses for months. Traders became more active in purchasing.

Aluminium smelters are currently taking a wait-and-see attitude amid rising alumina prices. However, alumina prices could climb further if smelters make large-scale purchases.