China Alumina Slips Yuan 10/mt to Yuan 2,470/mt Despite Ingot Spike

The China ex-works Shanxi daily spot alumina assessment slipped last Tuesday to Yuan 2,470/mt ($368/mt) full cash terms, down Yuan 10/mt from last Monday, despite a surge in domestic aluminum prices overnight.

The current price was also a decline of Yuan 10/mt on the week, and was down Yuan 120/mt from last month.

The bid-ask spread for spot alumina was mostly at Yuan 2,450-2,510/mt cash, with two potential buyers eying closer to Yuan 2,400/mt.

Last Tuesday, the front-month aluminum contract on the Shanghai Futures Exchange closed at Yuan 15,240/mt, up 2% on the day to a record high since end-November 2012.

The spike in metal prices was due mainly to an announcement from the Shandong local government last Tuesday, again highlighting unapproved new capacities in the province which it aimed to shut down.

According to the statement, Shandong producer Hongqiao was required to cut 2.68 million mt/year of smelting capacity, and Xinfa 530,500 mt/year.

Xinfa has already curtailed the required capacity in July, while Hongqiao said it has targeted 2 million mt/year of capacity replacement by end-August.

"It's all up to the government now, we've shut down some capacity and may replace some. But if the government says it's not up to standard then we'll likely have to cut more. We'll have to see what they decide in the end, there's no official instruction yet," a Hongqiao plant source said.

Hongqiao had announced a 250,000 mt/year cutback on June 20, and market talk is that it has since curtailed around 500,000 mt/year of capacity in total. Hongqiao declined to comment further.

The much-talked-about cuts have supported ingot prices, but pressured alumina as demand is likely to fall, while alumina supply rises. Both Hongqiao and Xinfa have started offering alumina in the local spot market in recent weeks.

Spot alumina is expected to continue testing lower in the near term as most market participants were confident the Hongqiao smelter cuts will be realized. But the room downwards may be limited by strong metal prices currently, they said.

"Hongqiao will stall as long as they can, especially since metal prices are rising. They will want to produce and store up as much as they can to cover losses when the cuts actually happen," a trader said.

A South China smelter agreed, adding that the Hongqiao cuts "will happen, but will take time."

The fall in alumina may also be buffered by recent environmental inspections which may result in bauxite and alumina cutbacks in Henan and Shanxi, sources said.

Meanwhile, the market also continued to eye clearer direction from two upcoming domestic industry events last week. An annual domestic industry conference was held in Kunming, Yunnan, last Wednesday, where the market expects to connect and discuss direction.