Supply

Medium-long term, domestic aluminum supply fluctuation risk persists, mainly from Yunnan's hydro-aluminum smelters. The idle capacity, mainly in Liaoning, Yunnan, Guizhou, Sichuan, totals some 1.29 million mt, but isn't ready for quick resumption. Other capacities are under construction or idle due to issues. Despite lucrative profitability, smelters mostly maintained steady production, without immediate voluntary reductions. Yunnan's expected capacity cut is 1.15 million mt, lowering China’s annual output from 41.62 million mt to roughly 41.49 million mt.

Aluminum supply: Overseas aluminum production recovery and expansion are slow, with a significant rise expected in Southeast Asia

According to the IAI, global primary aluminum production in Jan-Sep 2023 was 52.426 million mt, up 2.6% YoY, mostly from China and Southeast Asia. Outside China, production was some 21.5 million mt, up 2.3% YoY.

In 2023, overseas aluminum production changes were minor. High energy costs in 2022 led to significant cutbacks in Europe, a situation unresolved by 2023, hence, most smelters sustained their downscaled operations. Only France's Dunkerque Aluminum resumed full production of 105,000 mt. Restarted capacity also came from smelters in Brazil, Australia, and Canada. SMM data reveals a total resumption of 1.276 million mt from 2021 to 2023, with 2023 contributing 405,400 mt.

Aluminum import and export: Shifts in global aluminum ingot trade patterns, aluminum imports from Russia grew

Customs data indicates: From January to September 2023, China’s primary aluminum imports totaled 956,100 mt, up 163.93% YoY, and exports were 112,900 mt, down 41.31% YoY. The net import was 843,200 mt, up 496.16% YoY.

From an import source perspective, in September 2023, primary aluminum imports mainly came from Russia, India, Australia, etc. Specifically, September 2023 saw about 152,900 mt from Russia, up 234.77% YoY and 16.58% MoM, making up 76.15% of total imports, and ranking first.

In 2023, changes in international aluminum ingot trade patterns largely shut down domestic import opportunities, though some Russian aluminum continued to enter. Considering existing long-term import contracts and expected import profitability changes, SMM predicts that 2023's net primary aluminum imports might surpass 1.06 million mt, up 97% YoY.

Demand

Amid the global decarbonization trend, China's photovoltaic power generation share has substantial growth potential

In 2022, thermal power dominated China's electricity generation but grew the slowest at 2.7%. Renewable energy (hydro, wind, solar) share was rising. Solar power had the highest growth at 28.1%, the fastest among all major types, accounting for 14.25% of installed capacity.

With ongoing new power system construction, China's power supply-demand system changed significantly. In 1H 2023, it showed three features: growth, eco-friendliness, and adjustment. Non-fossil fuel electricity generation's share of installed capacity rose to 51.5%.

The photovoltaic sector could be the fastest growing aluminum downstream industry

In 2022, domestic photovoltaic (PV) module production was 297GW. SMM data shows January-August 2023 production reached 318GW, up 65.6% YoY. 2023's total PV module production is expected to near 500GW, up 68% YoY.

National Energy Administration data shows that from January to August 2023, China's newly installed photovoltaic capacity was 113GW, up 140% YoY. Total 2023 installed capacity is projected to reach 170GW.

According to SMM calculations, using 6,500 mt of aluminum per GW of photovoltaic frames and 7,000 mt per GW of brackets, 2023's estimated total aluminum usage in the photovoltaic industry is around 4.5 million mt, an over 80% increase. Considering primary aluminum's share in photovoltaic aluminum semi-finished products, SMM forecasts 2023's primary aluminum usage in the photovoltaic industry to be around 2.93 million mt, up 1.2 million mt YoY. From January-August 2023, estimated primary aluminum usage in the photovoltaic industry was 2.85 million mt, up 1.29 million mt YoY.

New energy has emerged as a key driver for aluminum extrusion production growth

In 2023, China's aluminum extrusion production rebounded, with annual output estimated to rise 6.65% YoY to 21.45 million mt. This includes 11.69 million mt from construction extrusion, up 1.35% YoY, and 10.75 million mt from industrial extrusion, up 25.31% YoY.

In industrial extrusion, photovoltaic extrusion significantly drove the overall industry, largely due to the new energy sector's rapid development and promising prospects. Explosive downstream demand in the second half of the year fueled a strong increase in photovoltaic extrusion.

While the overall construction extrusion sector remained in its off-season, " ensuring timely deliveries of presold homes" and "urban village" renovation policies drove a 19.8% YoY increase in national real estate completion area from January to September. This boosted usage of construction extrusions like doors, windows, curtain walls, and decorations. Yet, severe oversupply in construction extrusion production meant not all saw increased orders. The nature of these orders, often involving long payment terms and short construction periods, posed challenges for many small and medium-sized enterprises, directing orders towards larger enterprises and accelerating production capacity clearance.

Despite standout products, the overall output of aluminum plate/sheet, strip and foil is projected to see negative growth

SMM data indicates China's 2023 aluminum plate/sheet and strip production (including aluminum foil stock) is expected to hit about 12.3 million mt, down around 600,000 mt YoY. Total aluminum foil production is projected at about 4.5 million mt, down roughly 250,000 mt. Thus, China's 2023 aluminum plate/sheet, stripand foil production is almost certain to see negative growth. Despite a few products maintaining positive growth, they can't offset demand shortfall due to the global economic downturn.

In 2023, production of can body stock was 1.6 million mt and can lid stock was 460,000 mt, both significantly down. However, due to the push of the new energy industry, brazing materials and battery aluminum foil production saw substantial growth. Also, due to strong domestic real estate performance and global hot weather, air conditioning aluminum foil production could surge to 1.04 million mt.

Most aluminum plate/sheet, stripand foil products' production in 2023 was projected to be lower than 2022 estimates and early 2023 forecasts. "Lack of orders, fierce industry competition, and production cuts to preserve profits" emerged as the 2023 aluminum plate/sheet and foil market's main trend.

Due to weak international demand, China's 2023 aluminum semis exports declined YoY.

From January to September, China's total aluminum semis exports were around 3.955 million mt, down 18% YoY. Exports of aluminum plates/sheet, strip and foil remained weak, showing both YoY and MoM declines. However, products like aluminum bars and rods maintained stable export volumes YoY.

In 2023, the profit margin for China's aluminum semis exports shrank. With no major domestic or international aluminum price fluctuations in Q4, it was challenging to boost aluminum semis exports significantly. The total annual export volume was projected to hit around 5.6 million mt, down 9.3% YoY, but a 2.6% increase compared to 2021.

With minor cost adjustments, industry profits were concentrated in aluminum smelters benefiting from lower electricity costs

From January to October 2023, the average full cost of aluminum in China was around 16,536 yuan/mt, down 8.1% YoY. The average profit was about 2,110 yuan/mt, up 9% YoY.

In September 2023, with domestic alumina prices rebounding, stable power costs, and a slight increase in coal prices for some captive power plants, the full cost of aluminum saw a 0.51% monthly increase to 15,640 yuan/mt.

In the same month, the average spot price of aluminum was around 19,538 yuan/mt. The average industry profit was about 3,898 yuan/mt, up 26% MoM, and 268% YoY.

The clustering of new alumina projects might result in overcapacity

In 2023, new production capacity was successfully deployed, optimistically projecting about 6.6 million mt of capacity to be operational in 2024.

In 2023, the balance of supply and demand reached a tight equilibrium with the progressive introduction of new capacity and the phasing out of old ones. This balance is anticipated to tilt towards overcapacity in 2024.