In October 2023, China encountered an assorted journey in terms of price movement across the aluminium value chain. Being obligated to the unenthusiastic demand among downstream sector, China’s domestic primary aluminium ingot price continued to fall in the said month. On the other hand, the domestic alumina price took a sharp turn towards the rising trend, and the imported bauxite price started building up in the early days of October due to growing reliance on the overseas mineral.
In-depth price analysis:
China’s domestic A00 aluminium ingot price experienced a decline of RMB 510 per tonne or 2.60 per cent through the month of October to settle at RMB 19,080 per tonne, found the Shanghai Metals Market survey. The fall occurred primarily in the early days of October, bringing the primary aluminium ingot price below RMB 19,000 per tonne level, attributing to slow consumption in the downstream sector as China’s domestic construction sector was yet to revive. Besides, geopolitical conflicts drove import volume to increase, weighing on domestic prices.
The average domestic alumina price, on the other hand, recorded a sharp rise through the month, exceeding RMB 3,000 per tonne. Gaining RMB 48 per tonne through October, the alumina price closed the month at RMB 3,009 per tonne, according to SMM. The reduced dependence on imported alumina is one of the reasons behind its price hike. Meanwhile, the export volume grew significantly amid geopolitical conflicts causing a tight supply in the domestic market.
The imported bauxite price also built up till October 13 to US$69.6 per tonne from US$68.37 per tonne. It has been found that China’s reliance on imported bauxite is now close to 70 per cent, as the country is having less bauxite reserves with low grade minerals. However, towards the latter phase of October, China’s imported bauxite price started declining to close the month at US$69.72 per tonne.
Inventories at a glance:
Through the month of October 2023, China’s primary aluminium inventories remained range-bound between 582,000 tonnes and 623,000 tonnes, driven by tight demand and supply gap. Aluminium billet inventories, on the other hand, registered an increase of 40,000 tonnes in October from 103,700 tonnes at the beginning of the month to 107,700 tonnes at the end. Slow shipments of stocks due to narrow demand led to the rise in aluminium billet inventories.
Impactful incidents reported in October:
At the end of October 2023, several reports arrived about the downfall of Chinese aluminium companies’ earnings. Risen operation costs of aluminium smelters driven by domestic alumina price hikes led to the drop in the companies’ operating income. On October 25, Yunnan Aluminium Co., Ltd. announced that its operating income decreased by 5.27 per cent year-on-year to stand at RMB 12.091 billion during Q3 2023. The company’s net profit also shrank by 9.85 per cent during the same period to RMB 990 million.
Zhongfu Industrial Co., Ltd disclosed its operating income decreased by 2.06 per cent year-on-year in the first three quarters of 2023 to stand at RMB 13.643 billion. The net profit stood at RMB 794 million after plunging by 31.2 per cent year-on-year. China Aluminium also earned lower operating income in the first three quarters of 2023. The income stood at RMB 188.404 billion, shrinking by 17.23 per cent year-on-year.
Demand deficit impacting aluminium sales prices also took a toll of producers’ revenues. For instance, Shandong Nanshan Aluminium earned RMB 21.69 billion in revenue in the first three quarters of 2023, down by 18.24 per cent annually. Jiangsu Lidao New Materials Co., Ltd. disclosed that its revenue in the first three quarters of 2023 was about RMB 1.144 billion, down by 5.86 per cent year-on-year.
With the onset of the dry season from November, aluminium smelters in southwestern Yunnan province have begun cutting production. A smelter manager and two analysts have posted that smelters have begun the process of production cut of a total of 1.5 million tonnes of capacity. Yunnan is known for its abundant resources of hydropower, which have attracted many aluminium smelters from different parts of China. Yunnan has a capacity of 5.7 million tonnes, being the fourth largest aluminium-producing region in China and accounting for 12 per cent of the country’s total capacity.
However, the only drawback of Yunnan province for being reliant on hydropower is it is entirely dependent on weather. The scarcity of rainfall at any time of the year reduces power generation, leading to reduced aluminium production. As per the report, smelters would most likely complete the production cuts by November 5.
At the end of October, Fujian Nanping Aluminium Co., LTD. acquired ASI Performance Standard V3 (2022) Certification for three divisions within its Yanping District, Nanping City, Fujian Province, China factory. The divisions include the Foundry Branch, responsible for producing aluminium alloy round ingots; the Extrusion Division, dedicated to making aluminium alloy profiles for building purposes; and the Production Department, focused on manufacturing industrial aluminium alloy profiles.
On October 20, a tragic incident occurred at a factory in southern China, resulting in an explosion that claimed at least six lives. The explosion site in Pingguo, Guangxi Province, was determined to be a recycled aluminium casting workshop, as confirmed by China's state broadcaster CCTV. It was determined that the explosion was caused by high-temperature molten aluminium. Preliminary investigations indicated that the leakage of high-temperature molten aluminium triggered the blast into a cooling pool during the aluminium rod casting process. While further investigations were ongoing, rescue operations were concluded on October 21.
The first phase of Xinran aluminium profile project commenced in Lingbi County in Suzhou, Anhui, at early October. The project has involved a total investment of RMB 5.3 billion, and is believed to boost the development of the city with new job opportunities and power industry by creating a need for energy. The production workshop manufactures aluminium profiles by extruding round aluminium rods through a hot extrusion machine. Aluminium profiles are widely used in new energy auto parts, photovoltaic modules, construction, and other industries.
Conclusion:
To conclude, the limped demand for aluminium in the building & construction sector was offset by China's electric vehicles (EV) and renewable energy (RE) sectors as they contributed to the substantial consumption of aluminium in the country. Going ahead, China's primary aluminium ingot price is expected to see a rise backed by the robust demand for active production of electric vehicles and vigorous applications in solar panels. Also, production cuts in Yunnan for this year's dry season will boost domestic aluminium prices.
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