Overseas alumina prices continue to decline, domestic alumina price difference between north and south China narrows

On the January 24 morning commentary of SMM, Futures Market, during the night session, saw the most-traded alumina 2502 contract opening at RMB 3,668 per tonne, hitting a high of RMB 3,689 per tonne and a low of RMB 3,641 per tonne, and finally closing at RMB 3,660 per tonne, down RMB 58 per tonne or 1.57 per cent, with an open interest of 35,800 lots.

 Industry Dynamics

This week, the operating rate of leading downstream aluminium processing enterprises in China continued to drop sharply by 6.3 percentage points W-o-W to 51.1 per cent. This week marked the last trading week before the Chinese New Year, and operating rates across aluminium processing sectors generally declined due to the holiday.

The operating rate of primary aluminium alloy fell to 51 per cent, with some enterprises slowing production or conducting maintenance, and further production cuts are expected during the holiday. Downstream customers in the aluminium plate/sheet and strip and aluminium foil sectors have completed stockpiling, leading to sluggish transactions and lower operating rates, though normal production is expected to continue during the holiday.

As the holiday period is concentrated this week and next week, the operating rates of wire and cable, profiles, and secondary alloy sectors saw larger declines and are expected to continue to drop significantly next week. Overall, all downstream aluminium sectors were significantly impacted by the Chinese New Year break, with operating rates weakening notably. According to SMM forecasts, the operating rate of leading downstream aluminium processing enterprises in China is expected to drop further by 7.5 percentage points next week to 43.6 per cent.

Overseas alumina transactions

On January 23, two alumina transactions were reported overseas: 1) Vietnam sold 25,000 tonnes of alumina at US$566 per tonne FOB Go Dau, Vietnam, for shipment in late February/early March; 2) India sold 30,000 tonnes of alumina at US$566 per tonne FOB Visakhapatnam, India, for shipment in early March.

 Spot-futures price spread daily report

 According to SMM data, on January 23, the SMM alumina index showed a premium of RMB 392 per tonne against the most-traded contract’s latest transaction price at 11:30.

Warehouse warrant daily report

On January 23, the total registered warehouse warrants for alumina decreased by 3,907 tonnes from the previous trading day to 34,000 tonnes. The total registered warehouse warrants in Shandong remained unchanged at 901 tonnes, in Henan at 12,000 tonnes, in Guangxi at 0 tonne, in Gansu at 0 tonne, and in Xinjiang decreased by 3,907 tonnes to 21,000 tonnes compared to the previous trading day.

Overseas market

As of January 23, the FOB Western Australia alumina price was US$573 per tonne, with ocean freight at US$19.95 per tonne. The USD/CNY exchange rate sell price was around 7.30, translating to an external selling price of approximately RMB 4,972 per tonne at major domestic ports, RMB 876 per tonne higher than domestic alumina prices. The alumina import window remains closed.

Summary

This week, the weekly operating rate of alumina remained fluctuating at highs, with no significant reduction in alumina supply observed. As the Chinese New Year break approaches, spot alumina transactions were relatively sluggish. Overall, spot alumina transaction prices in north China saw a notable narrowing in declines, with current transaction prices approaching the theoretical marginal cost of alumina production in the region. In south China, spot alumina prices accelerated their decline, and the price difference between north and south China narrowed during the week. In the short term, no large-scale production cuts are expected for alumina, and the spot alumina market is anticipated to remain relatively well-supplied, with prices likely to continue their downward trend in the short term. Alumina's profit margins are narrowing, and cost support is gradually emerging. Continuous attention is needed on bauxite transaction prices and changes in alumina capacity.

Source: SMM