SHANGHAI, Jul 1 (SMM) - The commissioning of new alumina capacity in China has accelerated. As of June 7, the newly commissioned alumina projects this year include Jingxi Tiangui’s Phase II project (850,000 mt), Bosai Wanzhou (4.8 million mt), Hebei Wenfeng (2.4 million mt), Aokaida Chemical (400,000 mt), with a combined capacity of 8.45 million mt. In addition, another 4.45 million mt is waiting to be put into production. Thus, SMM estimates that a total of 12.9 million mt of new alumina capacity will come on stream this year. Given the release of such 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 bauxite supply, refineries in inland areas will lack cost advantages over their competitors in Shandong, Guangxi and Hebei.
As a result of the gradual release of new capacity, alumina prices have entered a downward channel since May 16. As of June 30, the SMM weighted alumina index had dropped by 59 yuan/mt. The market prices, albeit stable for now, will still have downside room in the future in view of the excess supply. Alumina refineries in high-cost areas are struggling to survive as rising bauxite and caustic soda prices have eroded the already meager profit margins. Thanks to close vicinity to ports, the costs of imported bauxite of alumina refineries in coastal areas are nearly 300 yuan/mt lower than their counterparts in inland areas, allowing them to sell at lower prices so as to size more market share. SMM learned that some alumina refineries have reduced their production due to shrinking profit margins and bauxite shortages.
Company A
The refinery has slashed its operating capacity from 1.2 million mt to 400,000-450,000 mt since the beginning of June due to the tight supply of bauxite, equivalent to a daily loss of 2,200 mt of output.
Company B
In early June, high bauxite prices and increased difficulty in bauxite procurement forced the refinery to reduce its operating capacity from 1.5 million mt in May to less than 1.2 million mt, affecting its output by 1,000 mt per day.
Company C
On June 20, the refinery put its roasting furnace under maintenance, which will last 20 days and affect its daily output by 1,400 mt.
Company D
The refinery, who has a total of 5 roasting furnaces, shut down one of them in early June, and another one in late June, which is estimated to reduce its output by 2,700 mt per day.
Company E
Bauxite shortfalls forced the refinery to cut its production in late June.
On the whole, the current sluggish alumina prices in Shanxi and Henan have plagued local alumina refineries. The sharp pullback of aluminium prices will put alumina refineries in a more unfavourable position when negotiating prices with aluminium smelters. According to SMM survey, high-cost alumina refineries will try to put pressure on high-priced raw materials so as to alleviate their cost pressure. While alumina refineries are trying to improve their bargaining power, the deadlock of price talks may stall for an extended period of time as the supply of bauxite and caustic soda may hardly increase.
