China's aluminium output remains high as Strait of Hormuz disruption affects supply

Commerzbank said China’s aluminium output has increased by about 3 per cent compared to last year. Production is now above the government’s annual cap. Higher aluminium prices and changes in alumina supply have supported this rise.

Analyst Volkmar Baur said production is expected to stay above 3.75 million tonnes in the coming months. This is linked to the ongoing situation around the Strait of Hormuz, which remains blocked due to conflict. In his words, “As long as the Iran conflict persists and renders the Strait of Hormuz impassable, production disruptions in the Gulf region are likely to continue."

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The disruption has affected supply in the Gulf region. Aluminium prices have increased by about 9 per cent since the conflict began. At the same time, there is now excess alumina in the global market. Alumina is used as a key input in aluminium production and is usually shipped to Gulf countries.

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With higher prices and more available alumina, Chinese producers are continuing to operate above the official limit. This makes production more profitable in the short term. However, the bank said that if the Chinese government does not raise the production cap, smelters may need to reduce output later in the year. 

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Baur gave this notion by saying, “Both rising aluminium prices and a surplus of alumina therefore make it economically lucrative (at least for the moment) for Chinese smelters to produce above the government’s cap. If this cap is not raised, production would have to be scaled back accordingly over the course of the year."