Prospects for alumina market in the fourth quarter

Recently, the price of alumina has risen more and less, and the volume of spot transactions has been very low. The price seems to have stagnated and the trend is weaker and weaker. Recently, Beijing, Tianjin, Hebei and the surrounding areas are facing heavy pollution weather, and the alumina industry is restricted, which also fails to cause big fluctuations in the market. At the other end of alumina, electrolytic aluminium, we can see that aluminium prices not only hit a new high in the year, but also the profits are high in recent two years. Alumina factories are generally in a low profit or even loss situation, and the current alumina market makes the industry somewhat difficult to understand.

Judging from the start of alumina production, the overall operating capacity of domestic alumina has not changed much before June. Except for a few roaster overhauls, the actual output has little impact. According to the statistics of Luzheng futures, the operating capacity of domestic alumina in January-July of this year was basically about 73 million tons (the delivery of a letter in early May stopped, but other capacity was offset later), until mid-July. Later in the decade, we saw the reduction and compression of alumina production in Xingan Chemical Industry, China Aluminum Mining Industry and Shuijiang Chongqing, and the overall operating capacity dropped to around 71 million tons. Therefore, considering the demand of non-metallurgical grade, the supply of alumina in the first half of the year is excessive, at least quite abundant. Moreover, in May-June, when the price of alumina soared to more than 3100, the profit excess compensation stage, the output release is not small. Taking the output of the National Bureau of Statistics as an example, the output of Henan Province in Shanxi Province remained basically stable before June, and the output of Shanxi Province declined sharply only in July, mainly due to the shutdown of the delivery of communications, while the output of Henan Province remained basically stable. We have counted that the construction of Henan Province has been started at about 11 million tons, with little change in scope. This shows that although alumina prices have changed a lot in the first half of the year, the actual production is relatively stable, and a lot of stock must be produced. However, the actual inventory of alumina plant is not high at present, the last round of price collapse basically transferred to the middleman, and the middleman dumped goods to accelerate the price decline inventory transferred to the alumina plant, so the current pressure on alumina sales is not large, is to support the capital of alumina plant.

Looking at electrolytic aluminium, in the first half of the year, the recovery of electrolytic aluminium has been relatively slow. In the first quarter, the overall starting capacity maintained at 36 million tons, or even less than 36 million tons. In the second quarter, the starting capacity rose slightly, to 36.46 million tons, and in the third quarter, to 36 million tons. In August-September, due to the reduction of Weiqiao and Xinfa, the starting capacity dropped to 35.5-36 million tons. Meanwhile, the current supply of alumina is in excess, so the demand of alumina for electrolytic aluminium in the first three quarters is significantly lower than that for alumina production. This is also the reason why this year’s domestic alumina market has a long surplus, a short supply shortage and a weak rebound foundation. Therefore, judging from the effect of this round of price rebound, alumina price is dead set near the cost line, not only the price rebound is small, but also the volume is very low. When alumina overshoot happened in the early stage, large-scale electrolytic alumina manufacturers had a large amount of stock. According to the evidence, many large-scale demand factories in Northwest and Northeast China have basically purchased spot products in the year. The demand for spot purchases in the fourth quarter is not large, and the demand for transactable products is not large.

Table: Aluminum Production Capacity Change and Prospect
Slowing Up Trend: Prospect of Alumina Market in the Fourth Quarter

In addition, the trend of Chinalco is also the key force influencing the market trend. In 2019, Chinalco trusted the Western hydropower and Qiaotou aluminium power plants and purchased Yunnan Aluminum shares. Its capacity of operation and management electrolytic aluminium jumped to more than 7 million tons, while its capacity of alumina only increased by 1.6 million tons. Although the capacity of alumina under Chinalco has reached 20 million tons, the overall trend is that Chinalco has oxygen in the past two years. Aluminum carbide and electrolytic aluminium production capacity increment completely do not match, and this year because of losses in Shanxi and Henan, a large number of production capacity is not full, which means that this year China Aluminum International Trade in the alumina market sales pressure dropped significantly.

According to the annual report of Chinalco, in 2018, Chinalco will produce 13.51 million tons of alumina (part of the joint venture has strong operational independence, not to be sold by Chinalco International Trade), 4.17 million tons of electrolytic alumina and 5.46 million tons of alumina surplus. If Wenshan aluminium industry is included and the scale of electrolytic aluminium under its management, it is estimated that Chinalco will produce 15.2 million tons of alumina and 6.8 million tons of electrolytic aluminium on the basis of 2018. The alumina surplus will drop to 2.07 million tons, reflecting the sharp decline of alumina surplus in China this year, which has resulted in a sharp drop in the pressure on Sino-Aluminum to sell and the demand for market entry operations. Sino-Aluminum has shifted from the role of seller to that of buyer in the alumina market. We have not seen a Price-Limiting letter issued by Sino-Aluminum International Trade after the sharp fall in alumina prices.

Looking at the trend of alumina in the fourth quarter, we do not expect that there will be a big contradiction between supply and demand in the alumina market. The price trend is expected to remain stable, but the situation will continue to improve. The contradiction between supply and demand will gradually accumulate in the first half of 2020, and there may be a trend opportunity.

From the perspective of alumina start-up, due to the impact of environmental protection in autumn and winter, the production of alumina in the northern region may be depressed, but recently Jinzhong hopes to resume production. We estimate that the probability of alumina start-up in the fourth quarter will remain around 72 million tons, but considering the average monthly demand for imported alumina, it can basically meet the domestic demand for nearly 37 million tons of electrolytic aluminium.

From the perspective of the start-up of electrolytic aluminium, the recent reduction of production caused by the start-up accident of electrolytic aluminium is very slow. It is expected that the delay will lead to an increase in the buyer’s wait-and-see sentiment. Fortunately, in the fourth quarter, Xinfa, Xinhengfeng, Guangyuan Linfeng, Baitianlin, Weiqiao and other aluminium factories will resume production and increase. The start-up in the fourth quarter will rise significantly, and the start-up is expected to return to more than 37 million tons in November (in fact, it is still possible to resume). Production progress is relatively slow, we are relatively optimistic.

Therefore, the domestic demand for alumina will not be significantly improved until the middle and late November. If we strengthen environmental protection, the start-up and output of alumina will be restrained, and the price may also be able to rush upward. According to the current cost situation, it is estimated that the high point will be between 2650 and 2700, and then the upward price will stimulate the increase of supply. The capacity of alumina production will resume to more than 73 million tons, and the supply pressure will be increased. It’s not that powerful. It should be noted that the restrictions of environmental protection on the supply of domestic mines in autumn and winter, as well as the rise in the price of liquid alkali, have led Shanxi and Henan to fall into deep losses again, thus starting production capacity and output decline, which may accelerate the accumulation of contradictions in alumina supply, price or usher in a rebound supported by cost.