According to latest figures provided by Aladdiny, Chinese aluminium smelters have axed up to 340,000 tonnes in annual production due to the coronavirus pandemic, mostly by putting ageing potlines under maintenance. The Shanghai aluminium price hit a three-year nadir, hovering around $1600 (11,340 yuan) a tonne on March 24th, while the Middle Kingdom’s annual production capacity is 36 million tonnes.
Wood Mackenzie estimates that prices under 12,000 yuan a year means that “nearly 70% of the Chinese producers will be under water, and that’s certainly not sustainable”. Their profitability is also suffering due to sharp increases in the prices of raw alumina, promoted by bauxite mine supply and transport costs.
After building up inventories during the first two months of the year on the back of slumping demand at the hand of the novel COVID-19 virus, ShFE stocks have exploded from 185,127 tonnes at the end of December to 519,542 tonnes.
Baiinfo echoed Aladdiny’s findings, saying that 240,000 tonnes had already been cut and a further 60,000 tonnes would follow. The consultancy pointed the finger at 70,000 tonnes from a smelter belonging to a Shanxi smelter owned by Chalco. Chinese smelters are in a dilemma, Baiinfo said: selling aluminium at current prices will incur a loss, while not selling will hurt their cash flow.
Writing in Reuters last week, Andy Home called on Western producers to heed the lessons of the last crisis and embark on coordinated global production cuts. “If run-rates aren’t curtailed voluntarily, the price will end up forcing involuntary closures.”