Cicc released a research report that said, because the total production capacity has been in excess, and the difference in production costs leads to the supply elasticity of alumina is greater than that of electrolytic aluminum, the profit margin brought by the short-term supply shortage will stimulate the rapid response and adjustment of alumina supply, prompting supply and demand to return to balance, so the bank believes that the price of alumina is difficult to trend upward. It is predicted that the price of alumina will rise first and then fall in the second half of the year. Overall, it will remain in a narrow range between 2,600 yuan/ton and 2,950 yuan/ton. In the third quarter, the main pricing of Yunnan electrolytic aluminum production rhythm, rising demand to drive prices up. After entering the fourth quarter, the supply volume superimposes the impact of the downstream dry season, and the surplus may gradually appear, and the price will fall close to the cost.
Cicc's main views are as follows:
Looking back at history, the balance of alumina supply and demand has shifted from shortage to surplus.
Since 2000, with the rapid advancement of industrialization and urbanization in China, alumina as the main raw material for electrolytic aluminum has been in short supply, and the price has been rising. Driven by high profits, a large influx of capital and a rapid climb in domestic capacity, China has dominated global alumina capacity growth. After 2010, economic development gradually entered the new normal, and under the rebalancing of supply and demand, alumina is no longer the bottleneck of the development of the industrial chain. With the reform of the supply side of electrolytic aluminum in 2017, the ceiling of 45 million tons of production capacity has landed, and alumina has entered the stage of total excess production capacity, and the subsequent stage shortage market is mainly driven by supply-side interference such as environmental monitoring and accident shutdown.
In the long run, the upper limit of electrolytic aluminum production capacity is suspended, the total amount of alumina is relatively excess, and the short-term contradiction is the rhythm of electrolytic aluminum production in Yunnan.
According to the 45 million tons of electrolytic aluminum capacity ceiling defined in the electrolytic aluminum supply side reform in 2017, the current alumina capacity has an absolute surplus of 13.7 million tons. Superimposed planning of new capacity, the bank expects the total surplus will further expand. However, in the short term, on the one hand, the current capacity utilization rate of aluminum oxide plants is dynamically adjusted, and on the other hand, the market may focus more on the demand increase brought about by the resumption of electrolytic aluminum production in Yunnan. The bank expects Yunnan hydropower aluminum to resume production of 1.3 million tons this round, which is expected to drive alumina demand growth of 390,000 tons, and metallurgical grade alumina demand for the year reached 78.92 million tons. At the same time, the bank indicated that there is still uncertainty in the power supply of Yunnan dry season in the near fourth quarter, and the risk of electrolytic aluminum production reduction in Southwest China remains.
Following the pulse of resources, with the introduction of low-cost new production capacity, the regional structure of alumina production capacity is re-arranged.
According to the "alumina production process", bauxite is the most important part of the cost of alumina, accounting for about 40% of the production cost (49% of imported ore), and because of this, China's alumina production capacity shows obvious resource-oriented and regional concentration. As domestic bauxite resources tend to be tight and environmental monitoring policies continue to strengthen, the bank believes that in the future, domestic alumina production capacity will be more concentrated in port areas with lower transportation costs. According to SMM statistics, up to now, 3.6 million tons of domestic production capacity has been put into operation this year, the total supply surplus pattern, the bank is expected to low-cost new capacity may cause extrusion effect on existing capacity operation, the annual capacity utilization rate will fall to 81%, equivalent to 2023 China alumina production reached 82.18 million tons, an increase of 4.5%. In the longer term, the bank expects that high supply stability, low transportation costs, and the development demands of resource countries to increase the added value of the industry will drive the transfer of alumina production capacity to bauxite resource countries.
Under the pattern of total excess capacity, producers focus on cost leadership, but the new and old iterations may take time.
Under the pattern of overcapacity, producers focus on cost leadership. Capacity cross-regional replacement, industrial chain integration layout and production line scale upgrade have become industry trends. However, due to the low restart cost of alumina, marginal producers have the flexibility to determine their production plans and quickly resume production when the profit window opens. Therefore, the bank believes that in the short to medium term, the industry will still adjust the capacity utilization rate rather than the way of high-cost capacity clearance to deal with the problem of oversupply. The cost curve will be stretched to the left, not flatter.
Looking ahead, under excess expectations, the bank expects prices to fluctuate around costs, rising and then falling during the year.
Since the total capacity has been in excess, and the difference in production costs leads to the supply elasticity of alumina is greater than that of electrolytic aluminum, and the profit margin brought by the short-term supply shortage will stimulate the rapid response and adjustment of the supply of alumina, prompting the supply and demand to return to balance, so the bank believes that the price of alumina is difficult to trend upward. The bank predicts that alumina prices will rise and then fall in the second half of the year. Overall, it will remain in a narrow range between 2,600 yuan/ton and 2,950 yuan/ton. In the third quarter, the main pricing of Yunnan electrolytic aluminum production rhythm, rising demand to drive prices up. After entering the fourth quarter, the supply volume superimposes the impact of the downstream dry season, and the surplus may gradually appear, and the price will fall close to the cost.