SHANGHAI, Sep 16 (SMM) - Aluminium prices have moved up recently. The SMM A00 aluminium prices dropped to 17,720 yuan/mt in mid-July, but rebounded after smelters in Sichuan were shut down due to power rationing, trading at 18,790 yuan/mt as of September 13, an increase of 6%.
In contrast, the SMM alumina weighted index fell from 2,964 yuan/mt in mid-July to 2,941 yuan/mt in mid-September, and the downward trend seems unlikely to be reversed any time soon.
Alumina markets diverged by region in mid-August, with prices in the north down sharply
In mid-August, the performance of local markets differed. Prices in Shanxi and Henan rose slightly, while those in Shandong dropped sharply, followed by a fall in prices in Guangxi; and prices in Guizhou declined slightly.
In Shanxi, market rumours that an alumina plant in central Shanxi would suspend its production did not come true, but the operating rates in Shanxi were low and stood at about 80%. The companies maintained their production mainly to ensure the delivery of long-term orders. A small amount of spots were available in the market, and the quotes moved between 2,900-2,950 yuan/mt. The traded prices were around 2,890-2,930 yuan/mt.
In Henan, the costs of alumina refineries remained high, and the manufacturers held their prices firm, thus the prices in this region were the highest in China.
In Shandong, alumina prices began to drop sharply in mid-August as some refineries with high in-plant inventories of spots cut their prices to make shipments. However, according to SMM survey, the buyers believed that the prices in Shandong were inflated, so the traders will probably once again go short.
In Guangxi, with the release of new production capacity, the spot supply was abundant, and the prices fell slowly.
In Chongqing, due to the power cuts, a local alumina refinery with an installed capacity of 800,000 mt reduced its capacity by 50%, and another refinery with an installed capacity of 4.8 million mt cut its capacity by about 20%.
Alumina prices in north China stabilised in late August due to the disturbances in the alumina production, while those in the south-west continued to fall
The pandemic outbreak struck the north. According to SMM research, the pandemic-related traffic control in Sanmenxia around August 20 caused a sudden drop in logistics capacity, which not only hindered the transportation of alumina to other regions, but also affected the procurement and restocking of raw materials by alumina refineries. Some manufacturers in Henan had to consume their in-plant inventory of raw materials such as bauxite, lime, caustic soda. The temporary mismatch between supply and demand offered certain support to the alumina prices in north China.
In the south-west, the power shortage caused by hot weather further intensified. Around August 24, the aluminium smelters in Sichuan all suspended the production, involving nearly 1 million mt of aluminium capacity, and the demand for alumina in the south-west declined accordingly. Although some alumina refineries in this region also stopped the production (about 1.8-2 million mt of alumina capacity in Chongqing was cut), the pessimism in the south-west market remained in place. And the prices of alumina in south-west China dropped again.
In early September, there have been many changes on the supply side
(1) In mid-August, affected by the power cuts in the south-west, an alumina refinery in Chongqing with a capacity of 800,000 mt was temporarily shut down. With the power supply in Sichuan and Chongqing gradually returning to normal at the end of August, the refinery resumed its operation and may reach full capacity in mid-September.
(2) Another alumina refinery in Chongqing with an installed capacity of 4 million mt reduced the production by 20% due to the power cuts earlier, and it has begun to resume its production in early September.
(3) The maintenance of the roaster of an alumina refinery with an installed capacity of 900,000 mt in Guizhou was completed, and the production was resumed at the end of August. The products were mainly to meet the delivery of the previous long-term orders, so there were no excess goods flowing into the market.
(4) A production accident occurred at an alumina refinery in Shandong, which caused the production line with a capacity of 900,000 mt to fail to operate normally, and the impact lasted for about 30 days. It is estimated that the actual output will fall about 70,000-75,000 mt. Production will resume in mid-to-late September.
(5) An alumina refinery with an installed capacity of 900,000 mt in Guangxi halved its operating rates due to the low in-plant inventory of bauxite. The production resumption date depends on the inventory of raw materials.
Alumina prices still at downside risks from falling demand
On the demand side, the power rationing in Sichuan eased, and the aluminium smelters that had previously reduced their production all began to resume the operation. However, there is currently a shortage of hydropower in Yunnan, and the market is worried about the operation of aluminium smelters in this region. As of September 13, aluminium smelters in Yunnan have reduced their production, and the risk of decline in alumina demand is deepening.
On the supply side, the alumina refineries that bore high costs frequently reduced or suspended their production, and the commissioning cycle of new production capacity was also affected by many factors such as the supply of raw materials. Therefore, the expectation of a substantial supply surplus has weakened.
The current alumina supply and demand remain balanced, and the prices in the future will be adjusted according to the fluctuations on the supply and demand sides. In the short term, in north China, the prices will still get support from the costs and are unlikely to fall, while in the south-west, the production cut of aluminium smelters in Yunnan and the continuous release of new production capacity may be bearish for the alumina prices in Guangxi, Guizhou and Chongqing.
