Review of China Alumina Capacity and Output in 2022

SHANGHAI, Jan 19 (SMM) - After a volatile first quarter, alumina prices stabilised for the rest of 2022. Alumina prices peaked at 3,305 yuan/mt in mid-February 2022, but hit a bottom of 2,764 yuan/mt in late November, with the gap between the two as large as 541 yuan/mt. On the whole, alumina prices traded within 250 yuan/mt of the weighted average cost of alumina refineries.

New alumina capacity was put into operation aggressively in 2022. According to SMM statistics, approximately 10.3 million mt of new alumina capacity was commissioned in 2022, exacerbating the supply surplus. Bauxite import prices rose. Taking Guinean bauxite (45% Al₂O₃, 3% Si) as an example, its import prices spiked from $55/mt at the beginning of 2022 to a high of $70/mt, an increase of 27%. Intensified oversupply capped the upside room of alumina prices, while rising raw material prices eroded the profit margins, aggravating the operational difficulties and risks of alumina refineries.

Capacity: Outdated and small alumina refineries were gradually replaced by large ones

According to SMM data, the installed alumina and aluminium capacity in China stood at 96.75 million mt and 44.48 million mt respectively as of December 2022, which excluded idled capacity that has no hope of being resumed in the foreseeable future. Assuming that it requires 1.925 mt of alumina to produce 1 mt of aluminum, there is currently nearly 9 million mt of excess alumina capacity in China. As demand was unable to keep up with rapidly growing supply, the domestic alumina capacity was in an excess for a prolonged period of time.

There were a total of 44 alumina refineries in operation in China last year, including 20 refineries with an annual capacity of more than 2 million mt, nine refineries (1-2 million mt), 12 refineries (0.5-1 million mt), and three refineries (<500,000 mt).

In the past decade, the distribution of alumina capacity in China has become increasingly concentrated. The number of alumina refineries was 40 in 2012, and only 45% of them had an annual capacity of more than 1 million mt, but the proportion exceeded 70% in 2022. In the long run, outdated and small alumina capacity will continue to be eliminated for cost control and larger alumina production lines will be built. As such, the concentration of the alumina industry will be enhanced further.

Output: Alumina output hit a 10-year high amid aggressive capacity expansions 

From 2013 to 2022, the annual output of alumina in China increased from 46.53 million mt to 77.68 million mt, with a compound annual growth rate (CAGR) of 5.8%.

2013-2018 was the stage of rapid development of the Chinese alumina industry. The capacity utilisation rate peaked at 87% in 2018-2019. Since then, the capacity utilisation rate fell steadily and hit a low of 77% in 2020 before recovering slightly to around 80%.

Two main factors have prevented the capacity utilisation rates from recovering to more than 85%. The first reason is the continuous increase in installed alumina capacity with the entry of new players and massive expansions of large alumina refineries. Secondly, aluminum capacity has been basically capped at 45.5 million mt after the release of Notice on Capacity Replacement in Aluminum Industry through Mergers, Acquisitions and Reorganisations in 2018, which constrained growth of alumina demand.