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Declining Aluminium Inventory across China and Indonesia’s Banning of Export Bauxite Boosted SHFE Aluminium Prices
May 20, 2022 11:40CST
Source:SMM
SHFE aluminium prices remain rangebound. In the early trading today, SHFE aluminium rose and ended the two-day continuous decline, closing up by 0.76% to 26,560 yuan/mt.

SHANGHAI, May 20 (SMM) - SHFE aluminium prices remain rangebound. In the early trading today, SHFE aluminium rose and ended the two-day continuous decline, closing up by 0.76% to 26,560 yuan/mt. Poor demand is still the main theme in the market. However, the dropping aluminium inventory this week supported the prices to some extent. Meanwhile, the news that Indonesia banned the export of bauxite this year also pushed up the prices.
In the spot market, quotes of SMM aluminium ingots today were 20,490-20,530 yuan/mt, with an average price of 20,510 yuan/mt, up 110 yuan/mt from the previous trading day.
Today, premiums of SMM Foshan aluminium were 10 yuan/mt over the 2206 contract. The average spot price recorded 20,520 yuan/mt, 100 yuan/mt higher than the previous trading day. In the second trading session, SHFE aluminium prices ran strongly. Traders held firm to their quotes, and the downstream sectors were also active in purchasing. The traded price rose by around premiums of 100 yuan/mt over the online prices to 20,530-20,630 yuan/mt.
On the news front, Bahlil Lahadalia, Minister of Investment of Indonesia/Chairman of Indonesia Investment Coordinating Board (BKPM), said that the government will ban the export of bauxite and tin in 2022, which will encourage downstream industries to create the greatest added value for the country.
It is understood that Indonesian President Joko Widodo said as early as November 2021 that the country might stop exporting bauxite in 2022, copper ore in 2023 or tin in 2024. The reason why the Indonesian president re-emphasised this policy is that he said that the bold measures taken by the government to stop exporting mining raw materials have had a positive impact on the country's trade balance, so the government will stick to implementing this policy.

According to the customs data, China imported 6.768 million mt of bauxite from Indonesia in the first quarter of 2022, up 118% year-on-year. According to SMM data, in March, China imported 21.2% of bauxite from Indonesia. If Indonesia’s policy is officially implemented, alumina factories will look for new sources from other places, such as Guinea and Australia.
Indonesia's ban and alumina factories’ seeking of sources from Guinea and Australia will undoubtedly have a direct impact on the prices and raise the costs of aluminium.
On the fundamentals, the aluminium social inventories across China totalled 965,000 mt as of May 19, down 38,000 mt from last Thursday and down 22,000 mt from the end of April. Low arrivals contributed to the decline in inventory this week. 

The decline was still led by Wuxi and Gongyi. The inventory in Wuxi fell 30,000 mt due to a sharp drop in arrivals and normal cargo pick-up. Fewer arrivals also led to a decline in the inventory in Gongyi. Sellers in Gongyi held back cargoes, even as the local spot premium rose. The inventory in Foshan rose slightly amid normal arrivals and modest shipments out of warehouses. Inventories in Hangzhou, Shanghai, Chongqing and other regions were stable.

To sum up, SMM believes that Indonesia's banning of the export of bauxite can only stimulate the current market shortly as the policy is not taking effect yet. However, the time when the ban will be implemented is uncertain. At present, domestic aluminium prices are still affected by the fundamentals. The impact of the previous accidental production reduction on aluminium prices weakens, and the market still worries about the new and resumed production capacity in the future. In the short term, the market that recovers from the pandemic still cannot strongly support the aluminium prices. At present, the declining inventories of aluminium across China continue to support the aluminium prices, so the market should keep an eye on the upcoming data on operating rates of aluminium extrusion. SMM expects that the aluminium prices will remain rangebound in a short time.


Disclaimer:

The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.

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