China July Aluminium output falls sequentially at -8% m/m

Aluminium output of China in July fell sequentially (-8% m/m), which is further supported by a trend of rising aluminium inventories in China during the July-August period, suggesting that weaker demand has offset the moderation in output, according to CNIA data.

Domestic smelter production has been buttressed by Chinese government power subsidies to counteract the pressures on margins from lower SHFE prices, the latest CNIA data showed a modest sequential fall in Aluminium production levels.

Output of aluminium in July was recorded at 53.9Ktd (19.7Mty), which represented a 4% m/m decline from June's record production level (56.1Ktd, 20.5Mty).

Bauxite imports continued to contract sharply y/y in July, reflecting the impact of Indonesia’s export restrictions. Total imports fell by 62% y/y to 1.4Mt, with 1Mt from Australia and a mere 213Kt from Indonesia. Antaike reported that Indonesian exports for major Chinese aluminium producers resumed by end-July, which will need to be verified by August’s numbers.

The massive front-loading is keeping YTD supply at a comfortable level, 10% higher y/y. China also imported 461Kt of alumina, up by 680% from a year ago owing to a very low base. Primary aluminium imports rose by more than four-fold y/y to 40.8Kt, taking YTD imports to 341Kt and 184% higher y/y.

With exports at 12Kt, China imported a net 29Kt of primary aluminium. A favourable arb since April 2012, supported by financing demand rather than robust downstream consumption, is likely behind the increase in imports.

While there may be a component of cost-related constraint on production contributing to this sequential decline, given that average SHFE prices were close to 2% lower ($40/t) in July versus June, we believe also that the fall has both a seasonal and demand component.