Power Supply cut by Yunnan Province Due to hydropower shortages in the drought-stricken province of Yunnan. Which produces 11% of China’s aluminium, the government has mandated that aluminium smelters nearby lower their operating rates.
The smelters have been instructed to restrict their usage of power by 15% to 30% starting last week, which is anticipated to result in a reduction in aluminium output capacity of 800,000 to 1.6 million tonnes.
The output cuts in Yunnan come after Sichuan smelters reduced their capacity by 920,000 tonnes in August, or 2% of China’s total. Although the length of the power outages in Yunnan have not yet been made public. The market anticipates that it will rely on how quickly the local weather gets better.
Aluminium production Reached Historic Levels.
Despite the energy crisis, China’s aluminium production has maintained steady. According to figures from the National Bureau of Statistics, the nation’s primary aluminium production reached a record in August, increasing 9.6% year over year to 3.51 million tonnes, surpassing the previous high in July. The output increased 2.1% to 26.47 million tonnes in the first eight months of the year.
However, the continued power restriction in Yunnan province may have limited production during September.
China’s exports of unwrought aluminium and aluminium products have also increased in 2022. They are up 31.5% so far this year compared to a year ago to 4.7 million tonnes. The fourth quarter is likely to see an increase due to producers in the US and Europe.
China shipped 540,400 tonnes of raw aluminium and aluminium products in August, an increase of 10.2% over the same month last year.
As a result of dampened home demand, record-high domestic production, and tightened international supply, imports decreased by 19% from a year earlier. According to customs figures, The nation imported 200,400 tonnes of unwrought aluminium and goods in August.
On the raw material side, China is also growing its aluminium exports, with annual shipments through August hitting 720,000 tonnes, up from just 100,000 tonnes a year earlier as Russian consumers look for alternatives after the conflict in Ukraine cut off their regular sources.
Aluminium Production Increased
According to the International Aluminium Institute, worldwide aluminium production increased 3.5% year over year in August to 5.89 million tonnes. Despite energy limitations for Chinese smelters and output cuts at European smelters. The total output for the entire year was 45.448 million tonnes.
Since December 2021, several smelter closures have been announced throughout Europe. Including those at Alcoa’s San Ciprian smelter and Hydro’s plant in Slovakia due to rising energy costs. Which make up nearly a third of the cost of producing aluminium.
1.9% of the world’s capacity, or 1.48 million tonnes. May be reduced in Europe and the US. 1.18 million tonnes of output. Or 11% of the region’s total installed capacity, have already been reduced by European smelters.
With Europe entering the winter season and the war with Russia still continuing, more smelter closures and production reductions are very possible.
Outlook for Global Demand Deteriorate.
The increase in Chinese output is offset by declining demand due to the general economic downturn. The dollar’s strength, China’s real estate crisis, and tighter global monetary policy have all weighed heavily on the aluminium market.
But last week, There were some encouraging signals of a rebound in the Chinese economy. The National Bureau of Statistics’ most recent data show that industrial production increased 4.2% on a yearly basis, Exceeding expectations and growing faster than July. In August, retail sales increased from July by 5.4%, which was greater than anticipated.
As more Chinese localities announce lending support and subsidies for home purchases. China is stepping up efforts to expand its housing and construction sectors. China’s Evergrande Group lifted the majority of its project freezes last week as the country entered its peak building season. Which typically lasts until the end of October.
However, compared to the country’s Covid-19 limits, China’s central bank and government have only made modest efforts at stimulating the economy thus far. According to data released last week, home prices fell for the twelfth straight month in August, bringing the annual rate of inflation for home prices to -2.1%.
LME Price Range
Although energy costs are high, weak demand has continued to exceed any possible supply issues, and for the time being, the market is more focused on the bad macro sentiment.
Amid worries that Russian supplies may soon appear at London Metal Exchange warehouses in Asia, LME aluminium prices are already down by 47% of $2,157/t on sep 26 from their year-to-date highs of $4,075/t recorded in March and are hovering around their lowest levels since April 2021.
As it becomes more difficult to find clients, Russian aluminium producer Rusal is apparently trying to transport part of its metal directly to LME warehouses in Asia. Rusal is anticipated that would initially send a modest quantity of aluminium to LME storage facilities. Increased flows could result in several problems. First off, a significant rise in LME inventories could put additional pressure on prices. Additionally, there may be an increase in the amount of aluminium in LME warehouses that buyers are hesitant to touch. This can result in a discrepancy in prices.