SHFE aluminium has made a stunning comeback of late, and the rebound will prove sustainable at least for now as stocks in domestic major markets have unexpectedly hit the lowest in nearly five years, SMM predicts.
Source: Reuters
As of today, aluminium stocks in China’s five major markets totaled 313,000 tonnes, down another 50,000 tonnes to a new low last seen in September 2011. In fact, the figure was down as much as 66 per cent from this year’s high seen in early March.
So, what's behind the dramatic fall? SMM has summarized several reasons as below:
Massive production cuts late last year were the main reason. SMM statistics showed China’s aluminium output fell 1.76 per cent year-on-year to 12.47 million tonnes during January-May.
Besides, better downstream consumption in the first half of this year also contributed to the decline.
Third, restarted and new capacity could not fill in gap from closed capacity. SMM estimates some 700,000-tpy aluminium capacity was brought back online in H1 2016, and new capacity was about 900,000-tpy. However, a total of 4 million-tpy shut down last year.
Another reason is that aluminium smelters prefer to turn aluminium liquid into rod, billet and alloy for sale, which reduced ingot shipments to major consumption hubs.
However, aluminium prices will come under downward pressure in the longer run as more smelters restart idled capacity, SMM warned. This possibility has piled up worries for the primary aluminium producers in India who are already battling a flood of cheaper imports from that country.
"China is going to ramp up aluminium production and also revive production at its old potlines. This is a case of concern for us though one of the bright spots for India is that it is a major centre for consumption", said TK Chand, chairman cum managing director, National Aluminium Company (Nalco) and president, Aluminium Association of India (AAI).
Though the US economy has shown signs of revival, the recent developments in Greece and the possible exit of Britain from the European Union has cast shadows on the aluminium industry, Chand said.
Satish Pai, deputy managing director, Hindalco Industries echoed his viewpoints. He said, "The downstream producers are very worried about the spate of imports. China's exports of finished products is on the rise and the country has now the second largest share in aluminium rolled products in the Indian market."
