Analysis of Operational Characteristics and Market Conditions in the Aluminum Industry

In June 2021, the aluminum smelting industry largely maintained the operational momentum of May, remaining within a normal range of economic activity. Regional supply constraints persisted, demand in major end-use sectors remained broadly stable, and rising costs—particularly for energy and electricity—kept aluminum prices trading in a narrow range. Specifically:

First, the resumption of production at electrolytic aluminum facilities has fallen short of expectations, resulting in a steady yet declining supply. In June, national electrolytic aluminum output totaled 3.29 million tonnes, down 0.9% from May’s 3.32 million tonnes—a second consecutive monthly decline. In mid-to-late May, Yunnan Province initiated emergency peak‑shaving power restrictions, leading to the suspension or curtailment of over one million tonnes of electrolytic aluminum capacity across the province. With the onset of June, weather conditions further delayed restarts, and newly commissioned capacity struggled to come online as scheduled. Meanwhile, power shortages have emerged in Inner Mongolia, Henan, and other regions, suggesting that nationwide electricity supply constraints are unlikely to ease in the near term. As of end-June, China’s operating electrolytic aluminum capacity stood at approximately 38.8 million tonnes per year, down about 100,000 tonnes annually from the previous month and roughly 600,000 tonnes lower than at the start of the year. However, supported by high aluminum prices in the second quarter, cumulative production for the first half of the year rose 10.1% year on year, reaching 19.64 million tonnes. In June, domestic alumina production added 1 million tonnes of new capacity, bringing total installed alumina capacity to 90.15 million tonnes per year—up 1.1% month on month.

Affected by domestic and international price differentials, both imports of unwrought aluminum and alumina in June exhibited month-on-month increases but year-on-year declines; however, the impact of trade volumes on the supply-demand balance remains relatively limited compared to production levels. Specifically, unwrought aluminum imports totaled 250,000 tonnes, up 34.1% month-on-month but down 2.5% year-on-year; alumina imports reached 280,000 tonnes, up 89.7% month-on-month and down 34.9% year-on-year.

Second, domestic sales and exports both declined slightly month-on-month, yet overall aluminum consumption continued to perform well. The domestic economy as a whole remains on a steady recovery trajectory. In the first half of this year, nationwide infrastructure investment rose 7.8% year-on-year, with an average two-year growth rate of 2.4%, down 0.2 percentage points from the first five months; real estate development investment increased 15.0% year-on-year, with an average two-year growth rate of 8.2%, down 0.4 percentage points from the first five months; and investment in national power grid projects reached RMB 173.4 billion, up 4.7% year-on-year. Affected by chip supply shortages, automobile production and sales continued to decline in June, with output and sales totaling 1.943 million and 2.015 million vehicles, respectively—down 4.8% and 5.3% month-on-month, and 16.5% and 12.4% year-on-year. However, new‑energy vehicle production and sales maintained robust growth, and market penetration continued to rise in June, reaching 12.8%. Moreover, the accelerated deployment of photovoltaic capacity is also expected to provide some support for aluminum consumption. In May this year, national aluminum profile output totaled 5.43 million tonnes, with daily production averaging 180,000 tonnes, up 3.7% month-on-month.

Affected by the global pandemic, overseas economic demand has recovered at a pace that, for now, outstrips the recovery of supply, allowing aluminum‑product exports to maintain their growth momentum. In June this year, aluminum‑product exports totaled 441,000 tonnes, up 4.0% month-on-month and 28.7% year-on-year; cumulative exports for the first half of the year reached 2.52 million tonnes, a 12.1% increase compared with the same period last year. In June, Brazil and the United Kingdom each initiated new trade‑remedy investigations against China involving aluminum sheet, strip, and foil, as well as aluminum extrusions, while the Gulf Cooperation Council and India issued final anti‑dumping rulings on Chinese aluminum sheet, strip, and foil. Challenges and pressures in the international trade environment thus persist. Nevertheless, even amid a severe climate of trade friction, proactive responses by industry players have yielded positive outcomes: for instance, Brazil’s aluminum sheet, strip, and foil anti‑dumping case successfully secured a finding of no injury for one-third of the products concerned; Thailand’s safeguard investigation on aluminum foil likewise resulted in a determination of no injury, with efforts to challenge the complainant’s industry representativeness leading to a decision to close the case without imposing measures; and Colombia announced the termination of its anti‑dumping duties on Chinese aluminum extrusions.

Third, the measures to ensure supply and stabilize prices are beginning to take effect, with aluminum prices remaining in a range-bound fluctuation. Following the government’s multi‑pronged efforts in May to secure supplies and stabilize prices for bulk commodities, aluminum prices have retreated from their earlier highs. However, given that domestic supply and demand for primary aluminum remain tightly balanced, Shanghai aluminum prices in June hovered between 18,200 and 19,200 yuan per ton, with a monthly average of 18,587 yuan per ton—down 2.9% from May’s average of 19,146 yuan per ton. Concurrent with this modest price correction, rising coal and electricity costs have squeezed profit margins in the electrolytic aluminum sector. In June, supported by tightening domestic bauxite supplies, higher seaborne freight rates for imported bauxite, and increasing prices for key inputs such as coal and caustic soda, domestic alumina prices climbed to around 2,500 yuan per ton. Across the aluminum industry’s full value chain, aluminum smelting continues to be the most profitable segment. In the first five months of this year, the aluminum sector—including mining and ore processing, smelting, and downstream fabrication—generated total profits of 61.3 billion yuan, up 792.1% year over year. Specifically, bauxite mining and ore processing posted profits of 32.77 million yuan, a year-on-year increase of 188.5%; aluminum smelting recorded 44.0 billion yuan in profits, up 1,406.3%; and aluminum fabrication reported 17.2 billion yuan, up 331.4%. Over the same period, the aluminum industry’s sales profit margin rose to 7.1%, compared with 1.1% in the same period last year, while the debt-to-asset ratio fell to 60.7%, down from 65.3% a year earlier. Among these segments, aluminum smelting boasted the highest sales profit margin, at 12.6%, versus 1.1% in the prior year. Seasonally adjusted, in May, the aluminum smelting sector—including alumina production, electrolytic aluminum, and recycled aluminum—generated 11.4 billion yuan in profits, a 12.4% increase month over month.

In the second half of this year, the aluminum smelting industry’s economic performance will be influenced by a range of uncertainties, including adjustments to domestic and international monetary policies, the timing and volume of state reserve releases, developments such as power restrictions in Yunnan and production curtailments in Inner Mongolia, fluctuations in the supply and prices of bauxite, coal, and other resources, as well as the evolving landscape of trade tensions. However, given that the national economy is expected to maintain a steady recovery and growth trajectory overall, we anticipate that the aluminum smelting sector will continue to operate within a “normal” range for the foreseeable future. (China Nonferrous Metals Industry Association)   Moxinda)

--Reprinted from “Henan Nonferrous Metals Brief, Issue 7”