Data shows that aluminium stocks on the Shanghai Futures Exchange (ShFE) have fallen for the first time in 2020, going down by 5,922 tons, or 1.1% from the previous week.
However, as the coronavirus outbreak spreading across the global has weakened demand, China is likely to see its aluminium exports decline.
Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, pointed out that aluminium stocks were still rising, adding that even though processing plants had returned to work, “their orders are not too good”.
Wang Hongfei, manager of the aluminium department at Antaike, a consultancy, underlined that the ShFE data doesn’t cover spot inventory for immediate purchase, and in reality, “spot inventories haven’t fallen at all […] and there was a lot of ‘hidden inventory’ on the market.”
While primary aluminium production remained stable for the month of February despite the COVID-19 crisis, producers in March were scaling back on certain production due to softening demand and various government measures aimed at stopping the spread of the virus.
Norsk Hydro announced it will temporary idle two recycling plants in France and Luxembourg, following an announcement earlier in March that they would close some extrusion plants in France, Italy and Spain.
Similarly, Rio Tinto has closed all non-essential business operations. While this does not impact aluminium production, the Canadian government has instructed industries in the country to reduce activity to a minimum.
However, producers are unlikely to start cutting primary aluminium output immediately, taking into account the high costs and long timetable for restarting plants. Furthermore, as input costs for aluminium production have fallen due to the drop in prices of oil, carbon and alumina, producers can hold tight for some time before considering closures.
In a climate of low demand largely due to shutdowns in the auto sector, CRU predicts a 4 million-tonne surplus in 2020, with demand shrinking by 7.9%.