Alumina Market in North China Began to Outperform that in the South

SHANGHAI, July 11 (SMM) –As of last Friday, the SMM weighted alumina index stood at 2,959 yuan/mt, basically flat from a week ago. The prices stood between 2,950-3,050 yuan/mt in Shandong, 2,970-3,070 yuan/mt in Henan, 2,870-2,900 yuan/mt in Shanxi, 2,950-3,010 yuan/mt in Guangxi, 2,890-2,960 yuan/mt in Guizhou, and 3,100-3,150 yuan/mt in Bayuquan.
Alumina prices FOB Western Australia fell $12/mt from a week ago to $355/mt as of last Friday, which was equivalent to 3,226.6 yuan/mt CIF China and 267.4 yuan/mt higher than the domestic spot prices. The ocean freight slid $3/mt to $60/mt. The overseas alumina prices kept falling amid increased supply, and will remain under pressure.
The alumina market in north China began to outperform that in the south. 
In north China, due to the difficulty in sourcing raw materials and high purchase prices, alumina refineries’ profits shrank substantially, and many high-cost refineries curtailed their production. As of last week, SMM statistics showed that the production reduction in the north was close to 4 million mt on an annualised basis. Alumina refineries in Shanxi and Henan were trying to put pressure on high-priced raw materials to so as to ease their own cost pressure. The domestic bauxite market is in a seller’s market as the supply has little room to grow, which has diminished the bargaining power of alumina refineries. Less firm caustic soda prices offered certain relief to alumina refineries, though. The purchase prices of liquid alkali in Shanxi were flat in July when compared with June, while those in Henan were reduced by 100 yuan/mt (100% concentration). In response to virtually meagre profit, refineries in north China are focusing on supply under long-term contracts while reducing their supply in the spot market, leading to a mild rise in the local spot prices. About 25,000 mt of alumina was sold in the north last week, and the transactions prices were mostly at 2,900 yuan/mt or above, exceeding the inquiry prices of 2,850 yuan/mt in the previous week. The market prices in the north are likely to hold firm in the short term. 
In south-west China, although the high operating capacity of aluminium smelters in Yunnan has sustained the demand for alumina, the imminent release of new alumina capacity is gradually steering the market in favour of buyers, weighing on the local alumina prices. Bosai Wanzhou will bring its operating alumina capacity to 4.8 million mt this month, releasing nearly 300,000 mt of output every month, while Tiangui’s Phase III project will be put into operation in July. 
SMM has divided the alumina price trends into the following three stages. In the first stage, with the gradual release of new alumina capacity, excess supply will keep putting pressure on alumina prices. In the second stage, some refineries will be forced to reduce their production after alumina prices fall below the costs of high-cost refineries, which will tighten the supply and drive the prices to rebound. In the third stage, with the old capacity being gradually replaced by new capacity, the market balance will be restored, and the alumina prices will stabilise and fluctuate around the costs. 
At present, the market has transitioned to the second stage. SMM will keep a close eye on the operations of high-cost capacity and the speed at which new capacity is being released.