Rising Alumina Costs Lead To Aluminium Production Drop By Chinese Smelters In August

Rising Alumina Costs Lead To Aluminium Production Drop By Chinese Smelters In August

Rising inputs and shrinking margins led aluminium smelters in the People’s Republic of China to scale back production by 3 percent last month, ending a streak of monthly highs for production.

Numbers released earlier this week by China’s National Bureau of Statistics (NBS) showed production for the month of August totaling 2.84 million metric tons, down from July’s total of 2.93 million metric tons. August’s output bested the total from a year prior by 7.8 percent however, according to NBS’s numbers.

August saw a per-day production average of 91,600 metric tons of primary aluminium according to calculations carried out by Reuters. Last month’s total is the lowest average since May, reported the news agency.

Year to date, the Middle Kingdom smelted 22.21 million metric tons of primary aluminium through August, a 3.5-percent rise over the prior year’s first eight months.

Experts chalk up the drop-off to the squeeze in production margins during the month, as inputs rose faster than aluminium prices. Though aluminium at the London Metal Exchange rose by 2.8 percent in the month, local prices in China’s industrial heartland for alumina jumped by 10.8 percent. Little respite from price rises could be found abroad in the month, as stoppages at Brazil’s Alunorte refinery and sanctions on Russia’s major alumina producer Rusal made buying the substance on the international market no better an option.

Hong Kong capital markets and investment group CLSA Ltd. analyst Victor You told Reuters of production cuts at Henan smelters, which are “traditionally a very high-cost place to run aluminium smelters.”

“That’s because a lot of the smelters do not have an integrated alumina operation. If they have to source from outside, it is going to be pretty rough for them,” he explained.

He went on to say that spot alumina prices in the area are higher now than they’ve been all year.

“(Aluminium margins) have been falling sharply, so it wouldn’t surprise me if some curtailments happened,” he opined.