SHANGHAI, May 15 (SMM) – There has been a wave of production cuts among alumina producers in China recently. Will this help put a floor under alumina prices and send ripple effects on aluminum prices?
The average alumina prices in domestic four major markets tumbled from 2,980 yuan/tonne early this year to 2,280 yuan/tonne as of May 11, down a staggering 700 yuan/tonne in just four months, with the biggest weekly decline reaching 100 yuan/tonne, SMM data showed.
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In terms of full costs, small alumina producers have been struggling in losses for a while and large producers recently entered loss-making territory. This forced many producers to cut output.
This round of production cuts and maintenance is concentrated in Shanxi and Henan, where environmental protection checks are strict. Environment issue aside, losses arising from rising raw material costs also forced local producers to cut output.
Large producers also joined the wave of production cuts and maintenance. Those who are in normal production said they will not sell based on average prices in spot market and will hold offers firm instead. Some traders have begun showing buying interest. In this context, alumina price decline slowed down last week.
These are signs that alumina prices will hit bottom. That said, price rally will not come until trading activity picks up.
Aluminum smelters are now wondering how alumina production cuts will affect aluminum prices.
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Plunging alumina prices helped reduce aluminum cost from 13,500 yuan/tonne early this year to below 13,000 yuan/tonne at present. Aluminum prices, instead of being dragged down by falling costs, actually held firm thanks to supply side reform.
Even if recent production cuts allow alumina prices to rebound, alumina prices are unlikely to return to highs seen early this year, SMM expects. As such, the latest round of production cuts in alumina market will have little impact on aluminum prices, SMM understands.
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