China's aluminium production reached an all-time high last month as smelters resumed operations, potentially setting the stage for further price declines following a two-year peak in May.
Improved hydropower reserves in Yunnan
Heavy rains have replenished hydropower reserves in Yunnan, enabling smelters to restart after droughts previously reduced their electricity supply. Insights from Bloomberg Intelligence (BI), a trusted source in the financial industry, indicate that an additional 330,000 tonnes of capacity is expected to resume in Yunnan this month. Furthermore, BI forecasts a decrease in aluminium prices in June, attributing it to softened demand following the recent price surge.
According to the statistics bureau on Monday, aluminium production surged by 7.2 per cent Y-o-Y, reaching 3.65 million tonnes, despite a decrease in the daily rate due to the shorter month of April. Meanwhile, steel output increased by 2.7 per cent to 92.86 million tonnes after experiencing declines in previous months, though the stability of this growth remains to be determined.
SMM anticipates
SMM anticipates further improvements in China's aluminium operating capacity in June. This growth is expected to be driven by the ongoing recovery of Yunnan's power supply and the commissioning of the new Huayun Phase III project in Inner Mongolia. The installed capacity is projected to increase to 45.36 million tonnes.
Considering the resumption of other capacities, SMM expects China's annual aluminium operating capacity to reach 43.27 million tonnes by the end of June. Additionally, SMM forecasts that aluminium production in June (30 days) will be approximately 3.54 million tonnes.
Image source - Financial Post
Other sectors
In response to the downturn in real estate demand, mills are shifting their focus to manufacturing and exports. However, despite this shift, profit margins remain negative. It's worth noting that the government has reiterated its commitment to limit production this year, a move aimed at achieving its climate objectives. In the energy sector, the impact of weak consumption was evident in oil processing, where refining decreased by 1.8% as more plants underwent seasonal maintenance to cope with the lacklustre demand.
Natural gas and crude oil production increased as Beijing continued to lessen its import dependence. However, coal output declined, running 3 per cent below last year's record pace for the first five months. Thermal power generation decreased annually for the first time since September, driven by a surge in output from hydropower dams and solar farms. This reduction in fossil fuel use suggests that China's emissions may have peaked following last year's record-breaking growth in renewable energy installations.
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