?

Shutdown Of Some Alumina Enterprises Influences The Market

In April, 2019, influenced by intensified environmental control, some alumina enterprises in Shanxi were shut down, which brought direct influence on about 5% of the total alumina capacity nationwide and is expected to promote the price increase of alumina in the short and medium term. With the slow increase in electrolytic aluminium price and decrease in power and prebaked anode cost recently, the business performance of aluminum enterprises may show significant improvement on a QoQ basis in Q2 2019.

The current rapid decline in inventory verified that the demand is relatively high, the subsequent consumption in real estate industry may be resilient, the consumption margin in power and automobile industries is likely to increase, and the overall demand in 2019 is expected to rise. At the supply side, most new capacity lacks of absolute cost advantage, the supply increase may lag behind the demand change, and the overall profitability of the industry in 2019 is expected to gain significant improvement compared with that in 2018.

According to information on Asianmetal.cn, Xinfa Aluminum in Shanxi Jiaokou County was ordered to make rectification by a working group set up by local government due to the leakage of its red mud dam filtrate. Influenced by the incident, some alumina enterprises in Shanxi Xiaoyi County and Jiaokou County may face mandated shutdown. According to information on Aladdiny.com, capacity of 2.8 million ton alumina of Xinfa Aluminum is under gradual shutdown, capacity of 0.4 million ton alumina of Huaqing Aluminum in Shanxi Xiaoyi County is shut down due to overhaul, totaling 3.2 million ton alumina shutdown (4.5% of 71.26 million ton operating capacity nationwide at the end of April). Moreover, Xinfa Chemical (3.4 million t/a), Xing’an Chemical (2.8 million t/a) and Jinzhong East Hope (3.0 million t/a) are also reducing their alumina output due to required decrease in red mud discharge. Overall, the influenced capacity of alumina is relatively high, and the unit price generally rose by RMB 125-200 yuan, with intended quotation and transaction price of over RMB 2,900/ton.

As the aluminum price rises slowly, the profitability of enterprises is improved. Based on estimate, the average profit of the entire electrolytic aluminium industry has risen from the RMB -900 yuan/t at the beginning of 2019 to RMB +200/t at the middle of May. From the beginning of Q2 2019 till now, the average profit is RMB +20/t aluminum, showing a significant increase compared with RMB -530/t in Q1 2019. It is expected that the business performance in Q2 of aluminum enterprises will be significantly improved QoQ. Some investors have the concern that the profit improvement may trigger the expedited commissioning of new capacity. However, the interval between commissioning and actual output of aluminum enterprises is about 2 months, most new capacity projects via replacement this year can be completed and put into production in H2 2019, and some capacities face external constraints as power price negotiation and slow commissioning (e.g. CHALCO Huarun), so the aluminum price is expected to remain high in the short term.

According to information on Mysteel.com, since the beginning of March 2019, the inventory of electrolytic aluminium in China has declined by about 0.36 million tons, the fastest decline ever, which is mainly due to slow increase in production and strong demand. According to information on Aladdiny.com, the production of electrolytic aluminium in China from January to April 2019 is 11.867 million tons, with a YoY increase of only about 1.3%. According to information issued by National Bureau of Statistics, the housing construction area in China from January to April 2019 realizes a YoY increase of 8.8%, loans and self-raised funds of real estate enterprises realize YoY increases of 3.7% and 5.3% respectively, showing a stronger completion intention, so the demand for aluminum in the real estate industry remains high in the short and medium term. For the power and automobile industries, due to the slow progress in investment and construction of State Grid and the issuance of automobile consumption policy in China from January to April 2019, the consumption margin in H2 2019 is expected to rise.

Overall, the aluminum industry demand this year will be higher than that in last year, most new capacity at the supply side lacks of absolutecost advantage, supply increase may lag behind the demand change, and the industry profitability is highly likely to be higher than that in 2018.