China aluminium market overview: While the industry grapples with downward prices and demand, auto sales growth adds a silver lining

The prevailing demand deficit for primary aluminium in China continued to affect domestic prices throughout November 2023. Slow metal supply across the market due to production cuts at Yunnan, resulting in rapid inventory fall, could not cast much positive impact on prices. However, it is believed that domestic automobile production growth in November may have supplemented the aluminium demand and offset the prices. 

China's automobile production and sales in November 2023

According to the data released by the China Automobile Association, China's automobile production witnessed a month-on-month growth of 7 percent and a year-on-year hike of 29.4 percent, amounting to 3.093 million units in November 2023. The data showed that sales also increased by 4.1 per cent M-o-M and 27.4 per cent Y-o-Y to 2.97 million units. Of the total units sold, 2.488 million cars were sold domestically.

Xu Haidong, deputy chief engineer of the China Association of Automobile Manufacturers, shared his projection that at the end of 2023, China's automobile sales would reach around 30 million units, marking an 11.7 per cent rise Y-o-Y. He also said that this figure would grow further in 2024 to stand around 31 million units, being one of the significant drivers of aluminium demand.

Aluminium price at a glance

China's A00 aluminium ingot price started the month at RMB 19,140 per tonne and ended at RMB 18,630 per tonne, marking a plunge of 2.66 per cent through November 2023. Intermittently, the price grew and reached RMB 19,230 per tonne as of November 8. It was from November 22 when the primary aluminium ingot price fell below the RMB 19,000 per tonne level. 

As far as alumina price was concerned, it also declined throughout November after incessant hikes in the previous two months. China's average alumina spot price started at RMB 3,010 per tonne on November 1 and remained restrained till November 8. The price began to fall from November 9 until reaching RMB 2,996 per tonne on November 30. Thus, the alumina spot price fell by 0.47 per cent throughout November 2023. 

Besides the slow market demand, primarily in the building and construction sector, the imported aluminium stocks could have been attributed to the fall in domestic prices. In contrast to China's aluminium import volume in October 2023, the demand did not recover, which successively impacted the domestic prices. According to the latest customs data, China imported 108,900 tonnes of unwrought aluminium alloy in October, up 17.5 per cent M-o-M and 9.2 per cent Y-o-Y driven by profitable imports under stable overseas quotations at $2,240-2,270 per tonne. Under this circumstance, the import window opened, and profits from ADC12 imports were as high as RMB 800 per tonne, eventually resulting in a domestic price fall. 

Production and capacity

Furthermore, imported aluminium replaced the consumption of domestic metal in November, as production cuts started affecting the regional supply chains. Production cuts at Yunnan due to the ongoing dry season engendered lower aluminium output in November. According to the Shanghai Metals Market survey, China's aluminium production in November stood at 3.488 million tonnes, down by 4.2 per cent from 3.641 million tonnes in October. SMM already projected the decline, estimating the output to reach 3.45 million tonnes. 

In line with the monthly production downfall, the average daily output also decreased in November 2023 to 116,300 tonnes from 117,500 tonnes in October.

Production of aluminium billet also recorded M-o-M fall of 12,000 tonnes to 1.318 million tonnes in November 2023. The operating rate was 65.5 per cent, down 0.9 per cent M-o-M. This downtrend will likely continue in December, given that some billet factories in Inner Mongolia and Xinjiang are expected to see production cuts or shutdowns of varying degrees due to annual maintenance, lower demand forecast, and early holidays.

At the end of November 2023, China's annual installed aluminium capacity stood at 45.19 million tonnes, reaching its peak. But the country's operating capacity amounted to 41.89 million tonnes, down by 2.56 per cent from 42.99 million tonnes a month ago. Many smelters were under maintenance, while many ran the show at lower capacity due to production cost hikes and energy consumption restrictions. 

In December 2023, China's domestic aluminium production is estimated to reach 3.56 million tonnes, registering a month-on-month rise of 2 per cent. Total production in 2023 will thus amount to 41.5 million tonnes, up by 3.6 per cent Y-o-Y.

China's metallurgical-grade alumina production also recorded a decline over a month to stand at 6.745 million tonnes in November versus 6.842 million tonnes in October. But the daily average output stood 1.86 per cent higher M-o-M at 224,800 tonnes compared to 220,700 tonnes in October, in line with SMM projection. SMM estimated last month that China's daily alumina production would stand at 223,000 tonnes per day in November, with an operating capacity of 81.15 million tonnes.

SMM predicts December's daily alumina production at about 223,000 tonnes, with a total operating capacity of around 81.5 million tonnes, up 6.6 per cent Y-o-Y.

Overview of inventory

China's aluminium ingot as well as billet inventories decreased through November to reach 598,000 tonnes and 93,400 tonnes, respectively, at the end of the month. Production cuts were genuinely a reason behind the low arrival of stocks to warehouses. A week later, as of December 7, primary aluminium inventories declined further to 560,000 tonnes and aluminium billet inventories to 85,600 tonnes. SMM says the inventories are depleting faster than expected. 

However, in the rest of December 2023, primary aluminium inventory depletion may face disruptions because lessened aluminium billet production in northern regions will lead to a potential cast ingot volume increase in some areas. Alongside, the inflow of imported ingots will rise as import windows open. Billet inventory is also estimated to grow with the ease of supply-side pressure.

Conclusion

China's aluminium demand is less likely to recover in the short term, given a slow economy at present. For the time being, the transportation sector will support domestic consumption, while the building & construction sector will continue the downtrend. Domestic primary aluminium ingot prices may rise in the interim period as imports will see a dip. Owing to booming auto consumption in Japan, Malaysia and other countries, aluminium alloy ingot exports to China will be fewer. Domestic production will remain weak due to capacity cuts in Yunnan and poor profitability for smelters. In the near term, although the raw and auxiliary materials market is expected to stay weak, significant decreases in electricity costs are less likely. Thus, the cost of domestic aluminium in China is forecasted to fluctuate but with a narrow range.