Alumina supply surplus weighs, while cost-driven curbs may set floor

Recently, domestic alumina spot and futures prices have weakened in tandem, and market sentiment has become more cautious. According to Mysteel research, China's operating alumina capacity has reached 99 million tonnes per year, the highest level so far this year. New commissioning and technical upgrade projects in the second half of the year are progressing as planned, meaning further supply increments will still be released going forward.

On the demand side, domestic primary aluminium operating capacity stands at 45.37 million tonnes per year, with industry operating rate already as high as 98.4 per cent, leaving very limited room for further increases. Even after factoring in some demand from aluminium hydroxide and non-aluminium sectors, the domestic alumina market as a whole remains in an oversupplied pattern.

In addition, the introduction of futures tools helps producers hedge sales and production risks through financial channels. However, the alumina industry has a high proportion of long-term contracts and thin spot trading, which has left large volumes of freely tradable material piling up at warehouses and rail sidings, with traders' inventories continuing to build. Against the backdrop of supply-demand mismatch, if a large amount of warrants and inventory is released at once, the market fears panic-style selling that could drive prices down faster.

Some participants are "not bearish" not because they expect prices to rise, but because they worry about rigid cost-side constraints. If prices fall further and sector losses widen, alumina refineries may cut output, which is seen as providing support for prices around current levels.

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According to Mysteel, based on Guinean bauxite at USD 70 per tonne, the industry-weighted average full cost of alumina is about RMB 2,654.3 per tonne. Around half of industry capacity is already running at a full-cost loss, and some units have even begun to lose cash. With no sign of cost relief, the market worries that continued price declines could expand losses to the point of triggering scaled-back production, creating the scenario of a price bottoming and rebound.

Overall, alumina prices remain under downward pressure from oversupply and rising inventories. However, potential production cuts driven by cost pressures could slow the pace of declines, keeping the market in a tug-of-war between supply surplus and cost support until a meaningful improvement in fundamentals takes hold.

Note: This news is published under a content and exchange agreement with Mysteel