Aluminium smelter explosion in China’s Yunnan province fuels surge in price of the metal

On 19^th November 2021, the prices of aluminium surged as the cloud of supply distress is anticipated following an aluminium smelter in China that ceased its production due to an explosion.

The Shanghai Metal Market reported that in China’s Yunnan province, an aluminium smelter with an annual production capacity of 300,000 tonnes stopped production after a blast incident happened in the plant on the evening of 18^th November 2021.

The Shanghai Futures Exchange’s most-traded January aluminium contract inclined as much as 3.7% to RMB 19,260 a tonne, while three-month aluminium on the LME advanced as much as 3.1% to $2,696 a tonne.

The aluminium sector has been deeply impacted by the recent China power crisis, as the smelting of metal is highly power-intensive.

The global energy, chemicals, renewables, metals and mining research and consultancy group supplying data and analysis, Wood Mackenzie evaluated that the energy restrictions in China have reduced around 7% production of domestic aluminium annual capacity so far this year.

A Shanghai-based aluminium trader commented: "News of the explosion helped aluminium in a knee-jerk reaction. Higher aluminium prices would depend on whether the disruption is prolonged and exacerbates shortages.”

“I think the market was over-sold. Fundamentals (for base metals) are good. People were too worried about real estate demand, ignoring the increment from new energy”, he further added.

However, inventories in China have revived marginally in the latest weeks following some relief from the power crisis.