When Energy Crisis, Strikes and Production Cuts Plague Aluminium Market

SHANGHAI, Aug 24 (SMM) - Recently, aluminium production has been seriously plagued by the extending power rationing in Sichuan province, and the demand side is also affected. The most-traded SHFE contract moved rangebound yesterday (August 23) as a whole, and closed the day up 0.78% at 18,685 yuan/mt.

LME aluminium, on the other hand, rose sharply amid continuous overseas production cuts, and recorded a gain of 1.09% at $2,416.5/mt as of 16:45, Beijing time.

The spot price of SMM A00 aluminium ingot stood at 18,550-18,590 yuan/mt as of August 23, with an average of 18,570 yuan/mt, down slightly by 10 yuan/mt from the previous trading day.

SMM aluminium price in Foshan showed a discount of 195 yuan/mt over the SHFE 2209 contract, up 5 yuan/mt from a day ago, and the average spot price recorded 18,370 yuan/mt, down 10 yuan/mt. In the second trading session, SHFE aluminium remained resilient on the news that overseas aluminium smelters further reduced the production. As such, cargo holders were reluctant to sell. The actual traded price over SMM Foshan price was in premiums of about 0-180 yuan/mt or 18,370-18,550 yuan/mt.

On the news side, another price of news concerning overseas aluminium production cut hit the market. The first was the strike at the previously mentioned Hydro's Sunndal aluminium smelter in Norway.

Under the previously signed agreement, one-fifth of aluminium production will be halted in the first month of the strike, and deliveries to customers from the Sunndal aluminium smelter will also be suspended during the strike, which will result in delays in deliveries. If the strike continues for more than four weeks, the production will then be cut by another 10% each week until one last work area is left running. It is reported that the smelter produces 400,000 mt of primary aluminium, 500,000 mt of cast products and 80,000 mt of anodes per year.

Meanwhile, Alcoa said on Monday that a strike at its Mosjoen aluminium smelter in Norway begun. Product deliveries from the Mosjoen aluminium smelter will stop until the strike ends. The Mosjoen aluminium smelter has five production lines with an annual capacity of 200,000 mt. 

The reduction of production by overseas aluminium smelters is mostly due to the soaring electricity prices caused by the European energy crisis, which has greatly affected the aluminium smelting industry, an energy-intensive industry. According to reports, European gas and electricity prices rose sharply on Monday, with German electricity prices topping 700 euro/MWh for the first time, reaching a record high of 710 euro/MWh.

The natural gas prices in Europe may continue to rise amid the shutdown of Nord Stream 1, and energy and electricity costs will face more severe challenges by then.

Back to the fundamentals in China, the power shortage in Sichuan has escalated, prompting more aluminium smelters to reduce or suspend the production. SMM data shows that Sichuan Province accommodates a total of 1.07 million of installed aluminium capacity, which is expected to be completely shut down in the coming week.

Although the pressure on the supply side has eased, the trend of aluminium prices is still subject to the downstream consumption. For now, the current downstream consumption of aluminium is also impacted by power cuts, and some have been shut down. In this context, the downstream demand is unlikely to improve in the near term.

Overall, the momentum of aluminium prices is still restrained by weak downstream demand and expectations of a macroeconomic recession. Short-term aluminium prices may still move in a wide range.