China aluminium market stays supported as inventories fall and prices gain nearly 8%

China’s domestic aluminium inventories declined, giving some support to aluminium prices. However, China’s aluminium production remained high, while a new alumina project in Guangxi entered trial production and is expected to add to future supply.

For aluminium, the fall in domestic inventories is a positive factor for prices. However, the supply picture remains mixed, as China’s aluminium production reached a record 4 million tonnes in August, according to the National Bureau of Statistics. Output was 4.7 per cent higher year on year, while production during January-August reached around 31 million tonnes, up 3.9 per cent from the same period last year.

At the current pace, annual production could reach around 47 million tonnes, above the country’s long-standing 45-million-tonne aluminium capacity ceiling.

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Strong aluminium prices and production margins have encouraged smelters to maintain high output. Benchmark three-month aluminium prices have gained nearly 8 per cent so far this year. On September 17, aluminium was priced at around RMB 24,193.33 (USD 3606.88) per tonne.

Other metals face mixed supply signals

In other base metals, the Fankou Lead-Zinc Mine resumed production on September 17, raising expectations of higher lead and zinc supply and putting pressure on prices.

Copper also faces mixed signals. Peru’s copper production has increased, while India has started anti-dumping measures against Chinese copper cables. At the same time, lower domestic copper inventories are providing some support to prices.

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A new alumina project in Guangxi has started trial production. The project is expected to add more alumina to the market, which could weigh on prices.

Meanwhile, none of the Mongolian coal auctions received bids. This reflects weak demand and could put pressure on spot and futures coal prices. Saudi Arabia has also resumed oil shipments. Higher crude supply could put further pressure on oil prices.