Nationwide output is now working near an annualized 43.0 million tons, inside touching distance of the file highs seen in September and October final yr.
The energy of major manufacturing progress has served to additional tighten up the marketplace for alumina, the intermediate product refined from bauxite. Chinese language spot costs are presently buying and selling near their highest ranges since late 2021, in flip offering value help for the steel worth.
Rain restarts play
Yunnan has seen a lot improved rainfall this yr, assuaging energy shortages within the hydro-rich province.
The native authorities have lifted working restrictions on major aluminum producers, facilitating the restart of round 1.15 million tons of capability that was ordered off-line final November.
Yunnan has emerged as a significant major manufacturing hub in recent times as smelters have relocated from coal-rich provinces to decrease their carbon footprint.
The province now hosts nearly six million tonnes of annual smelter capability and has turn out to be an necessary swing producer relying on rainfall patterns.
Proper now, native manufacturing is in full upswing because of an alleviation of the persistent drought situations that induced rolling closures during the last couple of years.
China’s annualized manufacturing has grown by simply over a million tons to this point this yr, nearly totally reversing the sharp drop seen in November when Yunnan capability powered down.
![China's alumina price is outperforming aluminium this year](https://fingfx.thomsonreuters.com/gfx/ce/dwvkzzmbzpm/China%20Al%20Alumina%20Relative.jpeg)
Alumina provide stretched
Home alumina provide has struggled to maintain up with demand from the smelter restarts in Yunnan.
Whereas nationwide manufacturing of the first steel rose by 5.4% within the first 5 months of the yr, output of alumina was up by simply 3.4%, based on native knowledge supplier Shanghai Steel Market.
The mismatch of provide and demand is evident to see within the relative worth efficiency of the Shanghai Futures Alternate’s (ShFE) alumina and aluminum contracts. The latter is up by 3.5% because the begin of January, whereas the value of alumina has risen by 15.3%.
Chinese language alumina costs have been unstable in 2024, leaping in January on account of concern about bauxite provides from Guinea and once more in Might after Rio Tinto declared pressure majeure on third-party deliveries from its alumina refineries in Queensland on account of restricted fuel provides.
Spot alumina is presently assessed by Shanghai Steel Market at 3,910 yuan ($537.95) per ton, simply shy of final month’s two-and-a-half yr excessive.
The ShFE contract, newly launched final yr, has been significantly frenetic, rising above the 4,000-yuan mark in Might and presently buying and selling under the spot bodily market at 3,800.
The basis trigger of upper and extra unstable pricing is China’s stretched upstream provide chain.
Environmental inspections induced a number of home bauxite mines to droop operations early within the yr, which in flip has constrained alumina manufacturing progress.
The nation’s growing reliance on bauxite from Guinea to fill the availability hole means home alumina pricing is changing into more and more delicate to abroad provide disruption.
Two-way flows
China has stepped up imports of alumina to assist steadiness the interior market. Inbound shipments totalled 1.15 million tons in January-Might, up by 60% on the primary 5 months of 2023.
Nevertheless, the nation is concurrently exporting ever extra alumina to Russia.
Russian producer Rusal has been in need of uncooked materials because the invasion of Ukraine in 2022, dropping each the Nikolaev refinery in Ukraine and entry to its Australian three way partnership on account of sanctions.
Chinese language alumina producers elevated exports to Russia from simply 1,750 tons in 2021 to 1.12 million tons final yr. Exports to this point this yr have surged one other 46% to 610,000 tons.
On a internet foundation the nation has been a comparatively small internet importer to the tune of slightly below 500,000 tons in 2024. That’s not been sufficient to totally offset the home provide hole nor replenish shares in any significant manner.
New worth driver
China’s alumina squeeze ought to diminish over the approaching months.
Present excessive costs are prone to spur the nation’s refineries to extend provide whereas the early-year acceleration in demand ought to abate as Yunnan’s smelters full their restarts.
Analysts at Macquarie anticipate alumina costs to peak within the third quarter of the yr because the market shifts again to provide surplus, though the financial institution expects solely a marginal 220,000-ton surplus over 2024 as a complete.
Nevertheless, the sustained rally in alumina pricing this yr is an indication that aluminum’s upstream provide dynamics have gotten much less steady and extra unpredictable.
The aluminum market hasn’t needed to fear a lot about bauxite or alumina provide up to now. However China’s rising dependence on imported bauxite represents a brand new vulnerability for the world’s largest aluminum producer, which in flip means a brand new driver for the value.
($1 = 7.2683 Chinese language yuan renminbi)
(The opinions expressed listed below are these of the writer, Andy House, a columnist for Reuters.)
(Enhancing by Susan Fenton)