MONTHLY: China's alumina supply-demand gap may widen in January

Last December, the impact on overall alumina output of more frequent production suspensions for routine maintenance and air pollution controls was limited. At the end of last year, most domestic alumina refiners operated steadily throughout the month to meet existing long-term contractual obligations and pursue potential new contracts, the report noted.

According to Mysteel's monthly survey, during December production of metallurgical-grade alumina among the 44 Chinese refiners under its regular tracking rose by 2.1% from November to 8 million tonnes, marking the highest monthly level since Mysteel began tracking the data in January 2017. The on-month increase was largely because December has one more production day than November. On a daily basis, output averaged 258,161 tonnes last month, down 1.2% from the prior month, Mysteel Global calculated.

During December, demand growth remained modest. The volume of alumina consumed by the primary aluminum sector increased slightly, mainly driven by the commissioning of a few new aluminum projects in the Xinjiang and Inner Mongolia autonomous regions. Mysteel's preliminary data showed that the 89 primary aluminum smelters it tracks produced 3.83 million tonnes of the light metal in December, up 3.8% from November and 3.0% on year.

Despite the marginal improvement in demand, the domestic alumina market remained in surplus throughout December, with inventories continuing to build. As of January 1, total alumina stocks across China's ten major ports, 44 alumina producers, 89 aluminum smelters, and rail yards or in transit tracked by Mysteel had increased by 6.1% from a month earlier to reach a new record high of 5.2 million tonnes, according to Mysteel's survey.

The persistent oversupply, combined with limited demand growth, further weighed on alumina prices last month. The weighted average monthly spot price for smelter-grade alumina with a purity above 98.6% fell by 2.9% on month to Yuan 2,769/tonne ($397/t) in December, Mysteel's price assessment showed.

Looking ahead to this month, the imbalance is projected to widen further. Domestic supply remains ample, while additional overseas supply is also likely to flow into the Chinese market, the report suggested. 

Domestically, alumina warrants stored at delivery warehouses registered with the Shanghai Futures Exchange are set to mature in a concentrated manner in January, which will increase alumina availability circulating in the spot market.

Internationally, newly commissioned alumina projects in countries such as Indonesia and India are expected to add to supply available to China in the coming months, exerting additional downward pressure on domestic prices.

For example, in Indonesia the Chinese-backed smelter Nanshan Aluminium International commissioned an additional 1 million tonnes/year alumina production line in late December, lifting its total capacity to 4 million t/y, as Mysteel Global reported. In India, Vedanta Aluminium announced in the second half of December that it had ramped up operations at its Lanjigarh refinery to an annual capacity of 5 million tonnes, according to an announcement published on its website. 

Although domestic alumina futures prices have experienced notable rebounds in recent weeks, the weakness in spot alumina prices will likely persist in January, the report predicted. During the first week of this month, spot alumina prices remained soft, with Mysteel assessing the national average spot price for smelter-grade alumina with purity above 98.6% at Yuan 2,694/t on January 7, down 4.3% from a month earlier.

Written by Iris Pang, pangjunyu@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com

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