Aluminum Prices Dip Amid Rising Production and Imports

Price

• As of Friday, LME opened at $2297.5/ton and closed at $2273/ton. Today, the market opened at $2272/ton.
• As of Friday, SHFE opened at 18,885 Yuan/ton and closed at 18,820 Yuan/ton. Today, the market opened at 18,910 Yuan/ton.
• As of the last day, MCX closed at 211.90 Rs/Kg. Today, the market opened at 211.80 Rs/Kg.

Demand and Supply

• According to statistics, Chinese domestic aluminum production in July 2024 was 3.683 million metric tons, marking a 3.22% increase year-over-year. This growth was supported by full production in Yunnan Province, new capacity in Inner Mongolia, and resumed output in Sichuan Province. However, the proportion of aluminum liquid fell to around 70.76% due to reduced activity at billet factories and other processing plants. Despite this, aluminum ingot production rose by 6.41% year-over-year to approximately 1.0769 million metric tons.
• Capacity-wise, domestic aluminum capacity reached about 45.36 million metric tons by the end of July, with operating capacity at 43.42 million metric tons, reflecting a 2.41% year-over-year increase to 95.72%. This increase was driven by resumed full production in Yunnan, new capacity in Inner Mongolia, and revived operations in Sichuan.
• Looking ahead to August 2024, Chinese domestic operating capacity is expected to grow further, largely due to the full ramp-up of the Huayun project's third phase in Inner Mongolia and the gradual restart of upgraded projects in Sichuan. The annualized operating capacity is projected to rise by about 100,000 metric tons to 43.52 million metric tons by the end of August, with production anticipated to reach around 3.691 million metric tons. As the peak season approaches and aluminum prices correct rapidly, downstream demand is expected to improve slightly, potentially boosting the operating rate of intermediate products like aluminum billets. The proportion of aluminum liquid is forecasted to rebound to about 73%, with ongoing attention needed on regional production restarts and downstream operating rates.

News

• In the first half of 2024, India's imports of alloyed aluminum ingots surged by 60%, reaching approximately 112,158 tonnes, up from 70,780 tonnes in the same period of 2023. Alloyed ingots made up 62% of India's total aluminum semi-finished imports, which amounted to 196,482 tonnes.
• The Red Sea crisis, which began in October 2023 and worsened over time, severely disrupted global trade and shipping routes, particularly through the Suez Canal, a key trade artery handling about 30% of global container traffic. This disruption forced ships to take longer routes around Africa's Cape of Good Hope, increasing shipping and insurance costs and leading to delays in deliveries and squeezed profit margins.
• This situation also adversely affected India's imports of aluminum scrap, particularly from the Middle East and the UK, which together supply 40-45% of India's scrap. The import of aluminum scrap dropped by 8% in the first half of 2024, falling to around 809,100 tonnes from 875,000 tonnes in the previous year. This decline in scrap imports led to higher demand for semi-finished products like alloy ingots.
• In the short term, the outlook is mixed. Prices for imported alloy ingots, which are substitutes for domestic ADC12 material, might decrease due to a drop in domestic prices. However, imports of wheel-grade (A356) ingots, which are less produced domestically, may continue to rise.

Expert Opinion

• On a macroeconomic level, the Chinese government is actively stimulating the domestic economy, global liquidity is rising, and regional conflicts are intensifying, all of which are contributing to upward pressure on aluminum prices.
• In terms of fundamentals, aluminum production for July was 3.683 million metric tons, and operating capacity has stabilized in August with only minor increases anticipated, suggesting that supply is nearing its peak.
• As August progresses, there are signs that downstream aluminum consumption is stabilizing and starting to recover, and inventories of aluminum ingots are expected to reach their peak gradually.
• In the short term, with macroeconomic and fundamental factors aligning, aluminum prices are likely to find a bottom.