Mysteel: China's aluminum sees rising margin with power costs reduced

According to Mysteel Aluminum Cost Model, the weighted average full cost of primary aluminum in China was Yuan 15,627/t in July, down Yuan 248/t from a month ago. The whole sector faced an average profit of Yuan 2,727/t, increased Yuan 45/t from June. The reduction in power cost accounts for nearly 80% of the total cost reduction and the changes in anode and alumina cost is insignificant.

Data Source: Mysteel

The weighted average price of captive power was down 2.8% on month to Yuan 0.382/kWh in July, which means a decrease of Yuan 147/t in power cost for those capacities using captive power.

The weighted average price of grid power was down 5.3% on month to Yuan 0.448/kWh in July. The decrease is mainly caused by the quick resumption of production in Yunnan, leading to a rising proportion of low-cost grid power usage. For those capacities relying on grid power, there was a decrease of Yuan 340/t in power cost. 

Data Source: Mysteel

China's weighted average price of alumina was Yuan 2,834/t in July, up Yuan 5/t compared to last month. Alumina prices rose in the southern market mainly driven by a supply gap in the region amid continuous restart of aluminum smelters in Yunnan. The performance of alumina prices in the northern market remained stable in early July while we saw tightened supply causing spot premium later on the back of bauxite mining disruption in Henan.

Data Source: Mysteel

Anode price remained flat in July with stable costs and production. According to a major aluminum company in Shandong, the purchase price of anode in July is Yuan 4,225/t, unchanged from a month ago.

Data Source: Mysteel

Based on aluminum price and the full cost in July, 98% of aluminum capacity in China was profitable, down 1.2% on month influenced by new commissioning in Guangxi. All smelting capacity was profitable based on the cash cost.

Mysteel expects the aluminum cost will remain flat in August. Alumina prices will maintain an upward trend while can be offset by reduction in power cost. Grid power costs are expected to edge down with the resumption in Yunnan reaching an end and thermal coal prices will stay firm with temperature falls gradually. Anode prices are estimated to remain stable.