Despite the enduring crisis in the building and construction sector, the robust demand from China's electric vehicles (EV) and renewable energy (RE) sectors has contributed to an upswing in the demand for aluminium, as reported by ING Think.
Chinese aluminium prices have shown more resilience than global prices for most of this year. While London Metal Exchange (LME) aluminium prices have experienced an over 8 per cent decline this year, prices on the Shanghai Futures Exchange (SHFE) have risen by around 1 per cent year-to-date. The continuous demand for aluminium in China has remained steadfast throughout the year, driven by the growing demand from the green sector, despite the nation's lacklustre economic recovery.
China experienced a surge in the inflow of aluminium due to an arbitrage opportunity arising from Shanghai Futures Exchange (SHFE) prices surpassing those of the London Metal Exchange (LME). In September, China's imports of unprocessed aluminium and related products saw a significant year-on-year increase of 63.2 per cent, reaching 331,716 tonnes. When considering the cumulative figures for the first nine months, imports grew by 21.5 per cent year-on-year, totalling 2.04 million tonnes.
China's bauxite imports in the last month reached 10.02 million tonnes, marking a notable 23.1 per cent increase compared to the same period in the previous year. Over the first nine months of the year, bauxite imports surged by 12.8 per cent year-over-year, reaching a total of 106.6 million tonnes.
Nonetheless, China has also imported a substantial portion of aluminium from Russia. While no official sanctions exist on purchasing Russian materials, numerous Western buyers have planned not to buy or renew their contracts with Russian companies in response to Ukraine-Russia's geopolitical crisis. China has absorbed a significant share of these materials that Western buyers have been avoiding. In the first eight months of 2023, imports of Russian aluminium comprised a staggering 87 per cent of China's overall imports in this category. This pattern is expected to persist as Europe continues to pursue self-imposed sanctions.
However, imports are still rising despite reaching new highs in domestic production. China achieved a historic peak in aluminium production in September, especially in Yunnan, the nation's fourth-largest aluminium-producing region. This increase is attributed to improved hydropower availability, and the daily aluminium output reached approximately 119,000 tonnes last month, surpassing the previous record of 116,000 tonnes set in August. In September, primary aluminium production increased by 5.3 per cent compared to the previous year, reaching 3.58 million tonnes. Over the first nine months of 2023, primary aluminium output reached 30.81 million tonnes, marking a 3.3 per cent increase from the same period in 2022.
The Yunnan province is currently witnessing restarts in its production. Still, there's a concern that if the upcoming dry season, typically spanning from December to March, results in insufficient rainfall, Chinese aluminium production may again fall short. Further reductions in supply, caused by a lack of hydropower, could necessitate increased imports. Last year, smelters in the province were compelled to curtail their production due to inadequate rainfall and declining water levels, resulting in a reduction of 2 million tonnes in production capacity. With a capacity cap of 45 million metric tonnes, the potential for smelter expansion in the country is limited, potentially driving a greater reliance on imports.
The strong import figures are supported by the fact that domestic inventories of aluminium are currently low. Aluminium stocks on the SHFE dropped to 79,194 tonnes last month, marking the lowest point since March 2019, a substantial decrease from the peak of 311,000 tonnes recorded in March 2023. This suggests ongoing and robust domestic demand for this metal.
While there has been a decrease in the demand for aluminium in traditional industrial sectors this year, China's ambitious decarbonization efforts have led to an increased need for metals, including aluminium, that are essential for manufacturing renewable energy-related products such as electric vehicles (EVs) and solar panels. This is part of China's commitment to achieving its dual carbon goals, which include reaching peak CO2 emissions before 2030 and carbon neutrality by 2060.
Aluminium is vital in various industries, including transportation, construction, packaging, aerospace, and defence. It is also crucial in nearly all energy generation, transmission, and storage aspects, especially in technologies driving the energy transition, like wind and solar power, alternative fuel cells, hydrogen production, high-voltage cables, and batteries.
China's new energy vehicle (NEV) sector, encompassing battery electric vehicles and plug-in hybrids, has been experiencing rapid growth. According to China Customs data, NEV production in China has increased by over 37 per cent per year in the first eight months of the year, totalling 5.44 million units.
In the realm of battery electric vehicles, aluminium is utilized in e-drive housings, battery pack housings, protective components for batteries, and cooling plates. Furthermore, aluminium plays a pivotal role in electromobility infrastructure, including power cables and charging stations. China is also the largest seller of EVs, with a 61 per cent increase in export volume in the first eight months of the year compared to the same period in 2022, as indicated by China Customs data.
China has actively promoted the production and sales of EVs in recent years through government policies and incentives for both manufacturers and consumers. Consequently, China has emerged as a global leader in the EV market, accounting for approximately 60 per cent of global electric car sales in 2022. Over half of the electric cars in operation worldwide are now in China, and the country has already surpassed its 2025 target of achieving a 20 per cent share of new energy vehicle sales, according to data from the International Energy Agency. As the demand for EVs continues to surge, so does the demand for the minerals used in their production, which is expected to sustain the demand for aluminium in the foreseeable future.
China's demand for solar power is rapidly increasing, and aluminium plays a pivotal role in solar photovoltaic (PV) applications, as per the World Bank. Over 85 per cent of the mineral material required for solar PV components, including frames and panels, comprises this metal. China is leading the charge in expanding solar PV capacity, expected to surpass 500 gigawatts (GW) of installed capacity by the end of 2023, constituting approximately 40 per cent of the global capacity. In comparison, the United States is second with 145GW, making up roughly 12 per cent of the worldwide capacity.
In 2023, China's anticipated new solar capacity is projected to surpass 150 gigawatts, nearly doubling the 87 gigawatts installed in 2022. Approximately 165 gigawatts are expected to be added in 2024, followed by an additional 170 gigawatts in 2025. This robust growth trajectory is set to propel China's cumulative solar photovoltaic capacity to exceed 700 gigawatts by 2024, further surging to nearly 900 gigawatts by the conclusion of 2025. Subsequently, in 2026, it is forecasted to exceed the remarkable milestone of one terawatt (1 TW), according to data provided by Rystad, an independent energy research and business intelligence company headquartered in Oslo, Norway.
In 2022, China unveiled its 14th Five-Year Plan for Renewable Energy with ambitious goals for expanding renewable energy capacity, poised to drive substantial growth in the coming years. China's global prominence as a solar panel supplier was highlighted in the first half of the year, with a 34 per cent increase in solar panel exports, amounting to 114GW, and roughly half of these exports heading to Europe. This is a notable uptick from the previous year when 85GW were exported during the same period.
While China's construction sector continues to grapple with challenges, leading to short to medium-term fluctuations in aluminium demand, the green sectors of the economy are expected to thrive. This growth will offset weaknesses in more conventional industries and increase the demand for eco-friendly metals, including aluminium.
Nonetheless, China's journey toward energy transition faces certain hurdles. Last summer, droughts in southwest China prompted cities to restrict power supply to heavy industries, disrupting aluminium production within the country. In Yunnan, this marked the second consecutive year in which the province had to curtail its aluminium output. As China decarbonises its aluminium industry and more smelters transition from coal-dependent regions like Shandong to hydroelectric-powered areas like Yunnan, the industry becomes more susceptible to further disruptions. This vulnerability arises because green energy relies heavily on weather conditions and patterns.
Source: ING Think
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