Alumina Prices Surge: Will Aluminium Smelters Face a Squeeze or Relief in 2025?

Since the start of 2024, the global alumina market has faced constant supply disruptions, leading to a steady price increase. On October 14, the Shanghai Futures Exchange’s (SHFE) main alumina contract hit an all-time high, with prices reaching 4,818 yuan/ton during the day and closing at 4,815 yuan/ton. In the night session, it climbed even further to 4,838 yuan/ton. Compared to September 11, this represents a price increase of 937 yuan/ton, or 24.1%.

As SMM surveyed, domestic alumina spot prices have also been climbing since early September. On October 15, these prices reached 4,398 yuan/ton, marking a 12% increase from September 2.

Similarly, the latest research from SMM shows that FOB alumina prices from East Australia surged to $652/ton on October 11, up 21% from the previous month. West Australian alumina prices followed this trend, hitting $679.10/ton on October 15.

Across both the Chinese and overseas markets, the main driver behind this price surge is the fundamental imbalance between supply and demand in the alumina market.

China's alumina market balance

1. Supply

Since the beginning of 2024, China’s alumina capacity has grown steadily, with an average refinery operating rate of 85.14% in August, according to SMM. Although the operating rate dipped slightly to 84% in September due to maintenance and upgrades at some refineries in Shanxi and Henan provinces, the impact on production was minimal. Output is expected to recover in October.

However, tight bauxite supply remains the primary constraint on capacity growth. Environmental regulations in Shanxi and Henan have restricted bauxite mining since late last year, with no significant recovery in sight. According to SMM, bauxite production in Shanxi is expected to drop by 27% year-on-year in 2024, while Henan will see a 10% decline. Additionally, open-pit mining approvals face strict environmental scrutiny, potentially limiting future domestic bauxite supply. SMM estimates that over 70% of China’s bauxite demand will rely on imports starting in 2024, and this reliance is expected to increase in the coming years.

In terms of bauxite imports, Guinea continues to be China’s largest supplier, accounting for 72% of total imports during the first nine months of 2024, with a total volume of 77.8 million tons. However, Guinea’s supply faces challenges, including disruptions from seasonal rains, labor strikes, and underdeveloped infrastructure, which have constrained the growth of its bauxite capacity and exports.

Overall, China’s bauxite imports have maintained an upward trend. In August, imports from Guinea and other non-mainstream sources both increased. Total bauxite imports from Guinea in the first eight months of this year reached approximately 78 million tons, a 12.5% increase compared to the same period last year, pushing monthly imports to a record high. However, shipments are likely to be delayed due to the rainy season in the coming months.

Meanwhile, imports from Australia have remained stable, averaging about 3 million tons per month and contributing to 23% of China’s total bauxite imports.

A key point of focus is Indonesia's bauxite export ban. Earlier this year, there was speculation that the ban might be lifted due to rising global prices, but no official confirmation has been made. SMM believes it is unlikely that the Indonesian government will reverse the policy, as they are prioritizing the development of domestic bauxite processing capabilities.

2. Demand

According to SMM, China’s operating aluminium smelting capacity saw a modest increase in 2024, reaching 43.51 million tons in September. Capacity expansions in Southwest China and new production from Xinjiang have contributed to higher demand for alumina. Additionally, smelters in Yunnan Provinces cancelled planned winter production cuts due to sufficient electricity reserves. These developments have further tightened the supply-demand balance for alumina in China, with SMM estimating a deficit of 100,000 tons in September. The tight balance may last until the end of this year.

Global alumina market balance

1. Supply

The overseas alumina supply chain has also experienced significant disruptions in 2024. Key events affecting the global alumina supply include:

• Alcoa: On January 8, Alcoa announced the closure of its Kwinana alumina refinery in Western Australia, which had an annual capacity of 2.2 million tons. The refinery was fully shut down by the end of the second quarter. Additionally, due to restrictions related to environmental permits, Alcoa can only use lower-grade bauxite at its other Australian refineries, keeping their operating rates below full capacity. The company expects to regain access to higher-grade bauxite only after 2027.

• Rio Tinto: At the end of March, Rio Tinto’s Yarwun and Queensland Alumina Limited (QAL) refineries were impacted by a natural gas pipeline explosion, reducing their combined annual output by approximately 600,000 tons. Currently, QAL is operating at around 86% capacity, mainly supported by its thermal power station, while Yarwun is running at about 75%. Full recovery for both refineries is expected by the end of this year.

• NALCO: In April, NALCO faced shipping delays due to logistical issues, disrupting supply, although this was resolved by May.

• South32: At the end of July, South32 lowered its alumina production forecast for 2024 by approximately 125,000 tons due to delays in environmental approvals and maintenance on conveyor belts at the Worsley refinery.

• Vedanta: In September, a dam breach occurred at Vedanta’s Lanjigarh refinery. While Vedanta stated that operations continued as normal, our research indicates that the economic fallout from the incident, combined with ongoing bauxite shortages, has delayed the refinery’s planned 1.5 million tons of new capacity until the end of 2025. The plant is currently operating at a capacity of 2 million tons.

• EGA: On 11th October, customs in Guinea halted alumina exports from EGA’s subsidiary, Guinea Alumina Corporation (GAC). EGA announced that production at the Al Taweelah refinery would remain unaffected if the issue is resolved within a few weeks, but the news still unsettled the market and contributed to the rise in alumina prices.

Despite these disruptions, new capacity is expected to come instream in Indonesia and India in 2025 should help ease global supply shortages. As SMM surveys, key projects include:

• Mempawah Refinery: This Indonesian refinery, with a capacity of 1 million tons, commenced production in September 2024 and is expected to reach full capacity by February 2025. There are plans to expand to 2 million tons in the future.

• Jinjiang Group: The group’s 1 million-ton alumina refinery in Indonesia is scheduled to start production in the first quarter of 2025.

• Nanshan Group: Nanshan Group plans to add 1 million tons of alumina capacity in Indonesia in the first half of 2025, followed by another 1 million tons expected to start in the second half, bringing total capacity of the plant to 4 million tons.

• Vedanta: As above, Vedanta’s Lanjigarh refinery is set to bring 1.5 million tons of new capacity online by the end of 2025, reaching a total of 5 million tons.

2. Demand

Compared to the fluctuations in the alumina market, the aluminium smelting sector has remained relatively stable. The modest increase in smelting capacity is primarily focused in Southeast Asia. For instance, the second phase of Huatsing smelter in Indonesia is set to produce its first output in October, while Adaro's 500,000-tonne smelter is expected to begin operations in the third quarter of 2025.

Additionally, Vedanta BALCO smelter in India is planning a 620,000-tonne expansion, which is under construction currently, also scheduled to come online next year. These new capacities are driving increased demand for alumina.

Domestic alumina export surge amid rising global prices

Following the gas pipeline explosion at Rio Tinto’s Gladstone operations in April, Australian alumina prices began to rise, effectively closing China’s alumina import window. As a result, China shifted to being a net exporter of alumina. In August, 94.6% of China’s alumina exports were under long-term contracts to Russia.

Market outlook

The rising price of alumina is putting significant pressure on aluminium smelters, especially those without integrated refineries. Alumina typically accounts for 30% to 40% of production costs, and margins will be squeezed if aluminium prices don't keep pace with rising alumina prices. If this gap widens further, smelters may have no choice but to cut production.

However, with new alumina capacity coming online in Indonesia and India in 2025, the current supply shortages are likely to ease in the latter part of next year. This could bring some price relief, although it may take time for the impact to be fully felt.