SHANGHAI, Apr 28 (SMM) -
Alumina landscape in north and south China will gradually change due to commissioning of enormous new alumina projects and transfer of aluminium capacity
According to SMM calculations, the domestic installed alumina capacity (including suspended projects) totals 94.1 million mt, and the installed aluminium capacity totals 43.96 million mt. Assuming that 1 mt of aluminium requires 1.925 mt of alumina, there is 9.47 million mt of excess alumina capacity in China. Even if the 4.1 million of closed alumina capacity has no hope of being resumed, there is still a surplus of 5.37 million mt. Over the next three and a half years, there will be nearly 5 million mt of new alumina projects ready to be commissioned, and domestic alumina can be fully self-sufficient.
The alumina price difference between north and south China will gradually narrow, and the situation of shipping alumina from south to the north will become history
Alumina had been in supply shortfall in north China and surplus in south-west China for many years, and this situation remained unchanged in Q1 this year, hence there had been a price gap of 100-200 yuan/mt between the two regions. Excess alumina would flow into north China.
However, starting from April, both north and south China saw tight balance of alumina due to transfer of aluminium capacity in the north and accelerated production resumption by aluminium smelters in south-west China. Without considering imported alumina as a supplement, alumina in both north and south China is self-sufficient. In this context, there will be little price gap between the north and south, and prices will move close to costs. However, alumina prices are showing signs of falling as fundamentals begin to worsen. Usually, alumina sellers lack bargaining power, except for force majeure such as the pandemic, which causes short-term regional imbalance.
The domestic alumina prices have been basically flat recently. The negative factors include:1. Massive release of new alumina capacity from May; 2. The alumina import volume was still as high as 176,000 mt in March, even when import loss was 1,000 yuan/mt; 3. In March, China exported merely 13,000 mt of alumina, well below previous expectations for 300,000 mt. Customs data showed that China exported just 10,000 mt of alumina to Russia in March. Exports in April are unlikely to meet expectations. High-cost alumina capacity is gradually shut down
Alumina refineries are rushing to put new capacity into operation so as to grab the market share. Most of the new alumina refineries are built close to ports in order to reduce the transportation cost of using imported ore. Taking Caofeidian port in north China as an example. Freight rate from alumina refineries in Shanxi to the port climbed from 100 yuan/mt to 350 yuan/mt after the pandemic broke out, and few trucks were available. In terms of transportation cost alone, assuming that one mt of alumina consumes 2.7 mt of imported ore, the current cost of using imported ore for inland alumina refineries is 600 yuan/mt higher than that in coastal areas, and the cost pressure has increased sharply. Given the release of tremendous alumina capacity, high-cost alumina refineries will face huge pressure, especially those in Shanxi, Henan and Guizhou, which are located far away from ports. In the context of falling domestic ore supply, refineries in inland areas will lack cost advantages over those in Shandong, Guangxi and Hebei. High-cost capacity will either be shut down or relocate to coastal areas in H2 amid intensified market competition.
