Alumina Costs Fell by 13.5% QoQ at the End of Q4 2021

SHANGHAI, Jan 25 (SMM) - According to SMM data, the weighted average full cost of alumina refineries in China was 2,604 yuan/mt at the end of Q4 2021, a drop of 407 yuan/mt or 13.5% from the end of Q3 2021, but up 14.7% from the same period of 2020.

In December 2021, the average price of SMM alumina was 2,973 yuan/mt, and the entire industry was in profit-making territory. The profits ranged from 100 yuan/mt to 550 yuan/mt as the costs of different refineries varied.

Two main factors accounted for the decline in alumina costs at the end of Q4 2021.

First of all, the coal prices returned to a rational range under the influence of policy intervention, reducing the energy costs of alumina. For example, the mine-mouth prices of 5500K coal in Datong, Shanxi, were as high as 1,295 yuan/mt at the end of Q3 2021, but fell to 849 yuan/mt at the end of Q4, a drop of 34.4%.

Secondly, the caustic soda prices kept falling in Q4 as the supply recovered with the easing of power rationing. For example, the prices of liquid alkali (after converting 32% ionic membrane liquid alkali in Shanxi into liquid alkali of 100% concentration) slumped from 5,000 yuan/mt at the end of Q3 2021 to 2,206 yuan/mt at the end of Q4, a drop of 55.9%. The alkali costs alone dropped by 150-300 yuan/mt when compared with the end of Q3.

Bauxite, alkali and energy, which together accounted for 80% of the total costs of alumina, experienced wild swings in their prices, hence greatly impacting the costs of alumina. It is expected that the alumina costs will be little changed at the end of January 2022 when compared with the end of December 2021. Bauxite prices will be basically flat amid quiet trades since most alumina refineries have stocked up enough bauxite for use through February. It is expected that the prices of caustic soda will fluctuate within a narrow range in January, and the changes in caustic soda prices are expected to impact the alumina costs by 50 yuan/mt. The output of both caustic soda and alumina is expected to be reduced due to the heating season and the Winter Olympics. In the long run, the price trend will depend on how much output is cut in the supply and demand side. The shortage of industrial electricity will ease in late January with the closures of some companies for the CNY, hence the prices of thermal coal, natural gas and coke oven gas will gain little upward momentum in January.

Since mid-January 2022, alumina prices have shown an upward trend. As of January 17, the SMM alumina weighted index was 2,899 yuan/mt, an increase of 81 yuan/mt from the beginning of January. Traders and aluminium smelters have become more active in stocking up amid the bullish sentiment ignited by expectations of alumina production reduction in the north, which may allow alumina prices to extend the gains until mid-February. The profit margins of alumina refineries will expand further amid stable costs and higher alumina prices, and the entire industry will remain profitable in January.