SHANGHAI, Apr 13 (SMM) - The SMM weighted average alumina index stood at 2,974 yuan/mt from March 11 to April 11, a drop of 182 yuan/mt or 5.8% from a month ago. The price trend was relatively stable over the past month, showing a slow decline from mid-March to late March, and a mild recovery from the end of March to mid-April. As of April 11, the SMM weighted alumina index stood at 2,992 yuan/mt. The prices stood between 2,950-2,980 yuan/mt in Shanxi, 3,000-3,050 yuan/mt in Henan, 2,920-3,030 yuan/mt in Shandong, 2,960-3,020 yuan/mt in Guangxi, 2,990-3,030 yuan/mt in Guizhou, and 3,200-3,300 yuan/mt in Bayuquan.
Alumina prices FOB Western Australia were as high as $535/mt in late March, but fell 26.2% to $395/mt as of April 11, basically erasing all the gains since mid-February. The price difference between China and overseas has shrunk from 1,500 yuan/mt to current 410 yuan/mt. The narrowing price spread eroded export profits, which, coupled with the severe pandemic situation, heightened wait-and-see sentiment among exporters.
Overseas alumina prices jumped 22% in March, driven by supply concerns following the closure of Nikolaev alumina refinery in Ukraine due to the Russia-Ukraine war, soaring crude oil prices and extremely tight shipping capacity. However, the overseas alumina prices entered a downward track at the end of March as more alumina flowed into the overseas spot market after Australia banned the export of alumina to Russia, easing supply tightness. In order to ensure the stable operation of high-profit aluminium business, Rusal may seek alumina from neighbouring countries. China may become Rusal's best alumina supplier in light of its advantageous geographical location and tremendous installed capacity. As of April 11, SMM heard that more than 200,000 mt of Chinese alumina had been exported to Russia. The scale and sustainability of future exports shall be closely watched.
The domestic prices were relatively stable in March due to a tightly balanced market.
Bullish factors: (1) In mid-March, the shortage of ore in Guizhou forced a local alumina refinery to reduce its output, affecting 400,000 mt of capacity. If the raw material issue is unsolved, it may continue to reduce its production. (2) Domestic bauxite in Shanxi and Henan are still in shortfalls, leaving local alumina refineries with no option other than to use more expensive imported ore, hence they held their offers firm. (3) The resumption of aluminium capacity is accelerating, and it is expected that the domestic operating aluminium capacity will exceed 40 million mt in May, boosting alumina demand. (4) Aluminium smelters are now more willing to stock up out of fears that the transportation will be further disrupted by the pandemic. The regional supply-demand imbalance has already brought a mild price rise.
Bearish factors: (1) The decline in overseas alumina prices will add to uncertainty to future exports. (2) SMM projects that the operating alumina capacity will increase by nearly 3 million mt at the end of April when compared with the end of March due to the release of new capacity, which will gradually shift the market to a surplus. (3) Aluminium prices kept falling after climbing to a high of 24,000 yuan/mt in early March and have fallen below 22,000 yuan/mt, which will put pressure on alumina prices.
SMM believes that higher costs, increasing downstream demand and regional supply-demand imbalance caused by the pandemic will give certain support to the short-term alumina prices. However, according to SMM survey, Shandong Luyu Bochuang’s Phase II project (800,000 mt) is expected to start yielding output in June this year. Chongqing Wanbo (1.8 million mt), Hebei Wenfeng (1.2 million mt), and Tiangui’s Phase II project (900,000 mt) are expected to release output around mid-April. The specific output will depend on the pace of commissioning and the supply of raw materials. It remains to be seen whether exports and domestic demand will be sufficient to absorb the new output. If the market shifts to a surplus, alumina prices may fall to breakeven points.
