Capacity reduction to tighten China's alumina supply in winter, prices expected to stay high

According to a Shanghai Metals Market, Henan Province, Binzhou and Zibo city of Shandong Province have introduced the time of production limit and the number of limited production line for alumina up to October 16. The government has asked for annual 10.34 million tonnes production limit. SMM has calculated the actual capacity of limited production and considering actual operating capacity, the actual reduced annual capacity for alumina stands at 8.2 million tonnes.  Liaochen City, Shandong Province and Changzhi City, Shanxi province have not introduced detailed plan.

SMM statistics shows that average spot alumina prices in China remains unchanged on October 19 at RMB 3702/t. On October 17, Chalco alumina price stands at RMB 3710/tonne.  Spot alumina prices remain unchanged in all other individual markets in China.

Average Spot Alumina Price

Another update from SMM says that, Shandong’s Liaocheng has issued winter output cut program for industrial enterprises.  According to the program, Chiping Xinfa Huayu Alumina Co. needs to close four production lines, with total capacity at 2.6 million tonnes. SMM also says that since Chiping Xinfa Huayu Alumina Co. is now not running at full capacity, the company many not need to cut capacity.   Xinfa Group will close 564 electrolytic cells in winter heating season, or 381,900 tonnes. This accounts for about 30% of its total capacity of 1.58 million tonnes.

The industry is waiting for Shanxi Province to follow Henan Province to introduce a provincial production limit for alumina. The alumina output of Shanxi is the second largest in China after Shandong and hence their green policies will have an impact on alumina price. Jinzhong city in Shanxi Province released a 30% production limit of alumina on heavily polluted days during heating season.

During winter heating season, alumina supply in China is expected to shrink over 2.5 million tonnes. However with the recovering capacity of estimated 1.5 million tonnes the actual reduced capacity would stand at 1 million tonnes. So irrespective of production limit in Shanxi Province, the alumina output reduction has exceeded that of aluminium during winter season. Alumina supply is is expected to be tight in the fourth quarter of 2017 which is keeping the prices high at present.

The profits of alumina industry have surged over 20% with the growth in price in the second half of 2017, while price rise of aluminium ingot is very weak. This will add to production cost and cut down profitability in aluminium. Falling profits are expected to discourage smelters to procure alumina, leading to a fall in alumina price.

Another part of the market thinks that production limits of alumina during heating season will cause its short supply. Transaction continues at present despite high price and this is expected to support the price rise of alumina.

SMM predicts tight supply and continuity of procurement will become the main factors to support alumina price. SMM foresees the targeted price of alumina in October would be RMB 4,000/tonne. According to some aluminium and alumina producers, production cuts in alumina and aluminium industry have helped the industry to grow in an orderly, well planned environment. The cuts did not affect development of mainstream producers.