SMM Forecast: Oversupply to Continue to Pressure Alumina Prices

In China’s domestic market, according to SMM data, there was a surplus of 249,000 mt of domestic alumina in the first quarter. As for the progress of newly-commissioned alumina capacity, the second phase of Tiandong Jinxin (1.2 million mt), the third and fourth phases of Hebei Wenfeng (2.4 million mt), and the second phase of Lubei Chemical Industry (1 million mt) have completed construction and are ready to produce finished alumina products. It is expected that the alumina production will still maintain a positive growth trend in the second quarter. On the demand side, Yunnan's aluminium output was cut by 780,000 mt in February, and there has been no sign of production resumption as of the publication of our monthly report. The demand in the south-west China remained weak, so the weak fundamentals continued to put pressure on the prices of alumina. With the gradual decline of raw material prices, the overall cost of alumina has been lowered. According to SMM data, the average full cost of domestic alumina in early April was 2,713 yuan/mt, and the current profit of domestic alumina plants is 30-300 yuan/mt. Large-scale losses have eased, and more than 95% of domestic manufacturers are profitable. The alumina plants in areas with high-cost felt a relief temporarily. But in the long run, lower cost will undermine the support for alumina prices.

With the widening price difference between north and south China, there are increasing shipments to the north from the south. On April 10, the average price of alumina in Shandong was 105 yuan/mt higher than that in Guangxi.

At present, rail-sea lump sum price of alumina delivered from Guangxi to Inner Mongolia is around 270 yuan/mt, and the transportation fees from Shandong to Inner Mongolia are about 240 yuan/mt. For aluminium plants in Inner Mongolia, sourcing alumina from Guangxi can save about 70 yuan/mt compared with from Shandong. This drove alumina shipments from south-west China to north China again. Aluminium prices in Shandong are the first to be impacted. With the increase in available spot cargoes in the region, the alumina prices in Shanxi and Henan are also at a risk of falling.

Overall, alumina prices should weaken. As the commissioning of new production capacity grows spot supply, it is likely that alumina plants in the regions with low cost will sell at low prices due to inventory pressure. That will then expand the regional price difference further. The price cuts will be initially seen in the regions with low cost such as Guangxi, later followed by areas with high cost such as Shanxi and Henan. In the short term, south-west China will lead the declines in alumina prices in April.