The long-term weak trend of alumina remains unchanged

Since April, alumina futures prices have rebounded starting from April 9 after hitting a nearly one-year low. However, under the constraints of medium and long-term expectations of a supply surplus, the extent of alumina price rebounds has been suppressed. Subsequently, prices broke down again and hit new lows before the "Labour Day holiday".

Multiple Factors Drive Short-Term Rebound

Increasing industry losses, concentrated production cuts, and disruptions at the bauxite end in Guinea collectively drove the rebound in alumina prices. Since April, alumina costs have continued to decline, but the rate of price decline has been faster, with spot alumina prices falling below the industry's average full cost line, and some regions even incurring cash cost losses. According to data from relevant institutions, in April, the average full cost of the alumina industry was 3,126 yuan/mt, with an average loss of approximately 176 yuan/mt in the alumina industry. The scope and depth of industry losses have expanded, with some high-cost enterprises incurring losses for several consecutive months. Against the backdrop of increasing loss pressures, news of production cuts on the supply side has emerged frequently, with the scale of production cuts showing an expanding trend.

The expansion of production cuts gradually diluted the pessimistic sentiment in the spot market. Production cuts were mainly concentrated in north China, with bearish sentiment in the markets of Shanxi and Henan provinces easing first, gradually leading to premium transactions and driving a rebound in the average spot price. Subsequently, transaction prices in the Shandong production area also rebounded. In addition, in April, the Investigative Chamber of the Court for the Repression of Economic and Financial Crimes in Guinea ordered AGB2A-GIC and its subcontractors to immediately cease operations, posing a potential risk of supply disruptions at the mine end, which also provided temporary support for alumina futures prices.

Price Rise Hindered by Surplus Expectations

The rebound in alumina prices has not been smooth, with the suppression of prices by medium and long-term expectations of a supply surplus being relatively significant. In April, alumina production resumptions and the release of new capacity occurred simultaneously, offsetting some of the impact of production cuts. In addition, the overall domestic demand for alumina has been relatively stable, while export demand has shown signs of marginal weakening, making it difficult to reverse the expectation of a supply surplus. According to data from relevant institutions, as of April 30, the average FOB price of Australian alumina was US$348/mt, down US$29/mt from the end of March. In April, the import and export windows for alumina remained closed. Data from the General Administration of Customs showed that in March, China exported 300,000 mt of alumina, up 105.9% YoY. From January to March, alumina exports totaled 700,000 mt, up 66.4% YoY. Export data has a certain lag and has not yet reflected the weakening of export demand. It is expected that export data will gradually decline in the future. From the perspective of the overall supply-demand balance of alumina, as of the end of March, alumina had been in surplus for five consecutive months.Given the considerable expected increase in supply, stable domestic demand, and weakening marginal export demand, alumina is expected to remain in a supply surplus situation in the future.

By the end of April, a solution had been found to the suspension of ore extraction by Guinean miners, and shipments were expected to gradually resume, with strong expectations for an increase in ore supply. As of the end of April, the transaction price of imported low-grade ore had fallen to $74.5/mt, and the reduction in ore prices had led to a downward shift in the cost support for alumina. In addition, the impact of news about Rusal's production cuts had intensified. On April 28, relevant personnel from Rusal stated that, constrained by high alumina prices and external sanctions pressure, Rusal had initiated capacity optimization measures by the end of 2024, reducing overall aluminum production by 10%. Affected by this, global alumina demand is expected to decline marginally. Under the influence of various factors, the rebound momentum gradually dissipated. After fluctuating rangebound around the 2,800 yuan/mt level, on April 29, the bearish force in the 2509 contract strengthened again, with longs reducing their positions and prices declining in the nearby 2505 contract.

Looking ahead, with an expected increase in bauxite supply, bauxite prices are expected to still have some downside room, exerting a negative impact on alumina prices. In terms of supply, the coexistence of production cuts, production resumptions, and new capacity releases is expected to persist. Australia and India still have capacity awaiting resumption, and the overall future supply increase in alumina is expected to be considerable. On the demand side, it will be affected by weakening export demand, leading to a marginal decline, thereby laying the foundation for the medium and long-term expectation of alumina supply surplus.

Under the pressure of the medium and long-term surplus expectation, alumina prices are under pressure, and the profits squeezed out by cost reductions are expected to be difficult to retain. In the long term, the profitability of the alumina industry is not optimistic, and there is still a possibility that enterprises will be forced to cut production due to loss pressures, thereby providing temporary support to prices again.

Overall, considering that the most-traded alumina contract has already undergone contract rollover, and the bearish main force has also actively increased its positions in the 2509 contract, the future market may trade on the distant Guinean rainy season and the release of new capacity, with significant room for gaming between speculative funds outside the industry and hedging forces within the industry. It is expected that alumina prices will be supported by costs at the bottom, presenting a box-like fluctuation, and attention should be paid to guarding against short-term abnormal movement risks. It is necessary to continuously monitor the capacity operation in high-cost production areas and the release speed of new capacity to prevent excessive expectation gap risks.

(Author's affiliation: Guosen Futures)