Chinese aluminium prices will fall further in Q4 – analysts

China’s aluminium prices are likely to fall in the fourth quarter, as supply is expected to rise amid sliding demand.

Some analysts have predicted that the prices will fall to an all-time low.

Traditionally, the fourth quarter has been a weak season for aluminium consumption, as cold weather in north China slows down construction activities.

In north-west China, however, smelters who are able to operate at relatively low costs are still gearing up.

Market participants have estimated that about 2 million tonnes of new aluminium capacity will start operations before year-end in China, with most coming from Xinjiang.

Ample coal resources and cheap power in the area have allowed new aluminium capacities to emerge in recent years.

Xinjiang’s aluminium capacity will reach 4 million tpy by the end of this year, with more to come in the next year, Xu Huimin, an analyst at Huatai Great Wall Futures, estimated.

Local reports have suggested that Xinjiang has arranged special trains to help ship aluminium out of the region.

While freezing weather would slow down shipments between November and February and downstream demand is decreasing but smelters in other parts of the country will keep producing.

Some analysts have pegged costs for aluminium smelting at 13,500-14,500 yuan ($2,196-2,359) per tonne, depending on different power rates.

The costs, however, are unlikely to provide support to aluminium prices.

“It is very costly to stop and restart aluminium smelting facilities, thus it would be the last choice for smelters to stop production even in the face of losses. Aluminium smelters won’t stop production unless they can’t afford workers’ wages because it is likely to cost them all year profits, if any, to stop production,” Yang said.

There are also expectations that the government will lower power rates in the fourth quarter.

China’s aluminium extrusion production rose 24.6% year-on-year to 18.2 million tonnes in the first half of the year but that doesn’t necessarily reflect robust final demand.

“Extruders have become a reservoir between aluminium smelters and downstream demand but they are not doing very well,” Yang said.

“China’s aluminium capacity has been rising since 2007 and has already exceeded 30 million tpy and is still growing. Last year’s output was about 21 million tonnes, that means a lot of capacity was idle and any improvement in aluminium prices will only result in more output and weigh on gains in prices,” Yang said. The light metal’s spot price on the Changjiang Nonferrous Metal Market was 14,610-14,650 yuan per tonne on Monday September 30.