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Recently commissioned projects in China and the related increase in production are set to weigh further on Chinese alumina prices, which were already on a downtrend amid aluminum output cuts in Yunnan, industry sources said April 5.
Domestic prices in China were largely in deadlock through the first quarter despite smelter curbs in the south and rising refinery operating rate in the north, but sources in China mostly expect market fundamentals to pressure prices lower entering the second quarter following a period of tug-of-war between producers and smelters.
Chinese market participants said spot negotiations in the northern regions of Shanxi, Shandong and Henan were going at around Yuan 2,880-2,950/mt ex-works, while prices in the southern regions of Guangxi, Guizhou and Chongqing were being discussed in a range of Yuan 2,770-2,850/mt ex-works.
Downward pressure was seen intensifying for domestic alumina prices in China amid a confluence of new refining capacity coming online and wavering offer levels, while downstream aluminum demand remained sluggish on the back of prior smelter curtailments.
Nearly 3.4 million mt/year of new alumina capacity is set to come online in the first half of the year, with 2.4 million mt/year coming on stream in late March, sources said.
The Hebei province and Guangxi region will both each gain new domestic refining capacity of 1.2 million mt/year in April, China-based sources said.
“There are more producers seen lowering offers now as compared to in the first quarter when prospective sellers were mostly traders, which could indicate a less optimistic outlook in the near term,” a trader said.
Meanwhile, there has been no significant demand recovery seen lately, although smelters in Sichuan have started to resume idled capacity, while new capacity additions are also under way, according to sources.
Prices in the south are relatively more exposed to downward pressure than the north, with recent smelter curbs in Yunnan due to hydropower shortages more than offsetting the resumption of idled smelting capacity in Sichuan.
Bosai Group Aba Aluminum Factory in Sichuan planned to resume 178 electrolytic tanks starting late March, which equates to 172,800 mt/year of capacity based on a total production capacity of 200,000 mt/year, S&P Global Commodity Insights calculations showed.
Resuming idled capacity will not fully offset Yunnan output cuts, as smelters there could not restart operations before the upcoming high-water season from May, sources said. High-water season typically indicates more water availability amid the onset of monsoon.
Gap widens between north and south
Platts China domestic alumina daily assessment stood at Yuan 2,940 ($427)/mt ex-works Shanxi April 4, with prices down Yuan 25/mt month on month, S&P Global data showed.
“I think that prices in the north could still hold firm, with some refineries still holding a wait-and-see position,” a producer said. “However, it is no secret that the larger smelter curtailments in Yunnan paint a more pessimistic outlook in the south.”
The growing gap between northern and southern alumina prices could boost market interest in transporting alumina from Guangxi and Guizhou to northern and western regions such as Xinjiang, Inner Mongolia and Shandong, which will drive northbound alumina flows and subsequently pressure northern prices, sources said.
A consumer said some of the current negotiations for southern Chinese alumina involved buyers from the north, highlighting the widening north-south price arbitrage as well as current availability of spot material in the south.
The gap between the north and south is widening, as alumina prices in south China continued the downward trend following the cuts at Yunnan smelters, while low stocks in refineries kept prices firm in the north.
This might increase interest in transporting alumina from south to north, which will boost northbound alumina flows and subsequently put northern prices under pressure, sources said.
Source: Platts