SHANGHAI, Jan 4 (SMM) - The global commodity prices showed a strong upward trend in 2021. Aluminium prices peaked at 24,765 yuan/mt throughout the entire year in October. Alumina prices hovered at lows in H1 under the background of a small surplus, but started to rise at the end of July, and the price increase accelerated in August. In early November, the SMM alumina weighted index reached 4,119 yuan/mt, a new high in the past ten years. However, the prices had lost the upward momentum ever since and entered a downward trajectory. As of the end of December, the prices had fallen by 1,310 yuan/mt, erasing all the gains from September to November.
1. Pessimistic expectations of the alumina market at the beginning of 2021
At the beginning of 2021, the market expectations of alumina were pessimistic. The market was in a surplus amid the continuous release of new capacity. The downstream aluminium smelting was profitable, but the demand for alumina barely increased as aluminium capacity had reached a bottleneck.
2. The slow price rise in Q1 and Q2 beat expectations
In mid-2021, alumina prices beat expectations. The SMM alumina weighted index rose from 2,338 yuan/mt in early January to 2,553 yuan/mt at the end of June, an increase of 9%.
3. Prices soared in Q3 and constantly refreshed the 10-year high
In August 2021, the alumina market turned brisk. Alumina prices in north China went up due to rising costs, and prices in south-west China followed suit with alumina outflows to the north. Three overseas refineries (Alumar, Jamalco, and Gramercy) cut their production. Guangxi required a 50% reduction in local alumina production. Guinea experienced political turmoil at the end of August. As a result, the bullish sentiment in the market increased significantly, lifting the SMM alumina weighted index from 2,571 yuan/mt at the beginning of August to a multi-year high of 4,119 yuan/mt in early November, an increase of 60.2% in three months.
4. Prices entered a downward channel in Q4
In November 2021, the alumina costs kept falling, and the prices of aluminium continued to fall. The domestic alumina market saw a small surplus, and cheaper overseas alumina flowed into China. As a result, the market sentiment turned bearish, and alumina prices entered a downward trajectory. As of late December, the SMM alumina weighted index stood at 2,809 yuan/mt, down 32% from the beginning of November.
Looking back to 2021, alumina prices soared in the first three quarters of the year on the back of a tight balance, expectations of supply shortages, the reluctance of the goods holders to sell, and price inflation by speculators. The prices plummeted in Q4 due to supply surplus, sell-off by suppliers and declining rigid demand caused by the pullback of aluminium prices.
As the alumina futures contract has not yet been launched, the "price discovery” was affected by the industry chain and the prices were vulnerable to sharp rise or fall when market sentiment changed.
If the alumina futures contract is launched, price volatility will mitigate. If not, disruptions to the supply or demand side will intensify price volatility.
In 2022, the average alumina price is expected to be around 2,700 yuan/mt. The centre of full-year price range will move around the costs. Prices in south China will continue to underperform those in the north.
