Mysteel: China Aluminum Market 2023 Mid-Year Review & Outlook
China's aluminum price fluctuated within a narrow range in the first half of 2023. Global economic growth continued to slow down in the first half of this year amid continued high energy prices, and as central banks rise interest rates rapidly to tackle high inflation. However, China's aluminum market saw some positive factors, including low ingot stocks and supply disruptions which boosted aluminum market.
According to Mysteel,the weighted average full cost in H1 is Yuan 16,714/t, down Yuan 50/t or 0.3% on year. The cost saw a downward trend as a result of price decreases in coal, alumina, and anode. Calculated by Mysteel average spot price of aluminum in H1, the average profit of aluminum is Yuan 1774/t, Yuan 2896/t lower compared to the same period in the previous year. High profits last year were spurred by supply disruptions, which stimulated aluminum price to spike. The profits have gradually returned to normal level since H2 2022.
According to Mysteel data, China's total installed capacity of primary aluminum was 44.67 MTPA by the end of June, up 0.53% on year. The operating capacity was 41.30 MTPA, up 0.02% on year.
The operating capacity saw a slow recovery in H1. The losses in Yunnan driven by power shortage was offset by restarts and new commissioning in Inner Mongolia, Gansu, Guangxi, Guizhou and Sichuan.
Mysteel' survey show that 1.715 MTPA aluminum capacity were cut in H1, which took place in Shandong, Yunnan and Guizhou. The curtailment in Shandong was due to capacity relocation to Yunnan, and the cuts in Yunnan and Guizhou were all driven by power shortage.
The total restart in H1 was 2.135 MTPA, mostly taking place in Guizhou, Sichuan, Guangxi and Yunnan.
The total primary aluminum production was 20.07 million tonnes in H1, up 1.5% on year.
According to Mysteel, China's total consumption of aluminum in H1 is 20.43 million tonnes, up 2.82% on year. Total unwrought aluminum and aluminum semis exports were 2.81 million tonnes, down 20% on year, reflecting weak overseas demand.
Quarterly view, the domestic demand in Q1 is significantly higher than in previous years, as the backlog of orders from downstream producers during the Spring Festival holiday caused a quick demand recovery after the holiday. The domestic demand decreased on quarter in Q2 as a result of weakening demand from end-users in real estate, automotive, photovoltaic, etc.
According to Mysteel, China had 477,000 tonnes of aluminum oversupplied in Q1 and 542,000 tonnes shortage in Q2.
By the end of June, China's total aluminum ingot social inventory is 472,000 tonnes, 15.56% lower than at the start of the year and 37.15% lower on year. The stock kept piling up from January to February on the back of decrease in consumption and ingot arrival during the Spring Festival holiday. The ingot began to destock rapidly since March, and the social inventory have reached a historically low level in seven years by the end of June. The destock is due to high consumption from downstream sectors in peak season.
In terms of supply, aluminum smelters in Yunnan have restarted since late June after high precipitation in the region, but many are still concerned about the production in dry season. New commissioning in H2 will be distributed in Yunnan, Guizhou, and Inner Mongolia. By Mysteel's prediction, China's annual aluminum production in 2023 will be 41.6 million tonnes, up 3.3% on year. and the operating capacity will be around 43 MTPA at the end of the year.
Regarding aluminum ingot social inventory, Mysteel expects the stock will reach above 700,000 tonnes in Q3 due to lower orders from downstream producers in the slack season. The stock in Q4 is expected to fluctuate in a narrow range and see a slight increase.
Mysteel predicts that China's aluminum market will see a surplus of around 380,000 tonnes in H2, bringing the balance to 320,000 tonnes of surplus in 2023.
The aluminum sector will remain profitable in H2 based on our prediction on the fundamentals, but lower than the average profit of Yuan 2682/t in June. In respect of production cost, it is expected to be relatively stable in Q3 and may rise up in Q4 resulting in a stimulation of aluminum price. Mysteel expects the aluminum price range in H2 to be Yuan 17,000/t to Yuan 19,500/t.
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