Production of electrolytic aluminium in Inner Mongolia, China, dropped by 314,000mt following emission and electricity usage curbs since February this year, according to a study by East Securities on primary aluminium supply chain in this region.
Following the May Day holiday, the global electrolytic aluminium prices are rising. The main contract price of Shanghai Aluminium is approaching the CNY20,000 ($3,110.58/mt) mark, and the LME March aluminium price is approaching US$2,600. The price rise is due to global inflation expectations and the destocking of domestic and foreign aluminium ingots, indicating strong fundamentals for
primary aluminium, the survey revealed.
The Chinese government has not yet announced the carbon emission standards for the second quarter, so, capacity is likely to stay low and the introduction of new production capacity remains uncertain. The survey shares that electrolytic aluminium enterprises are in the process of embracing wind and photovoltaic power to reduce emissions.
The survey draws the following conclusions based on the investigation of the aluminium industry chain in Inner Mongolia.
- China’s domestic primary aluminium output in March was 3.29mn mt, up by 6.7pc from the prior year; Jan to March output was 9.56mn mt, up by 5.4pc from the prior year period when production has dipped due to the pandemic.
- Domestic consumption of primary aluminium was 3.39mn mt, down by 2.8pc in April 2021 from the prior year month. The main downstream industries include aluminium profiles, strips, aluminium rods, and alloy ingots.
- The spike in the primary aluminium prices has damaged downstream consumption. These industries reduced inventories by 50pc but as the orders are satisfactory, there is no drop in a load of processing enterprises.
Despite high prices, downstream consumption in Northeast and North China remains unaffected. The overall orders are comparable to the peak season in preceding years.
The downstream stock has been reduced to a level to just about maintain production, but it did not reduce the load of processing enterprises. Considering the strong domestic electrolytic aluminium supply constraints, many companies are considering overseas expansion.
The survey found that as economic recovery continues in other countries and the concern about liquidity remains, short-term overseas consumption will remain intact. LME inventory is expected to deplete in sync with the demand and short-term stability of domestic supply. Chinese aluminium prices will continue the rise, the survey suggests.
Survey of four smelters in Inner Mongolia
The survey findings listed detailed investigation of four primary aluminium producers and shared that one smelter has halted its electrolytic production, two have reduced production while the fourth halted its new project.
A 13-year-old primary aluminium producer having an annual capacity of 1.05mn mt and an operating capacity of 985,000mt, has halted electrolytic primary production. The management is waiting for the issuance of the second quarter carbon emission indicators. The smelter produces 1,000mt of aluminium ingots per day and the rest is sold in the form of molten metal. The producer supplies material to the Northeast of China.
Another smelter having 800,000mt annual capacity and 700,000mt operating capacity, has reduced production by 100,000mt. The plant produces molten metal and aluminium rods and ingots. The survey said that the processing fee is the same as in previous years and sales are mainly in the Northern region.
One more primary aluminium producer’s capacity has been reduced by 40,000mt. This smelter in the Inner Mongolia region has annual capacity of 860,000mt and an operating capacity of 820,000mt. A few companies have reduced the intake of raw material, but the actual reduction is less due to contract constraints. Both, smelters and downstream industries, are cautious about additional inventories.
The survey findings suggest that downstream industries’ orders for electrolytic aluminium are strong. A new smelter in Ordos, having annual capacity to produce 1.31mn electrolytic aluminium and 1.28mn mt of operating capacity, has been halted. The main product of this smelter is molten aluminium and used to produce aluminium rods.
Aluminium processing industries
The region has an aluminium processing capacity of 300,000mt. Aluminium rods of 1-7 series and a small number of aluminium alloy ingots are produced here. Around 50pc of these products are used in industries. The products are sold to Hebei, Tianjin and Shandong regions. Civil building materials, aluminium templates, automotive materials, and solar energy are in great demand. The processing fee is at the same level as in previous years.
Alumina
The survey suggests that there is no impact of dual control policy on the manufacturing of alumina. Inner Mongolia region has a built-up capacity to produce 1mn mt of alumina and operating capacity of 500,000mt. Primary aluminum plants like Baolu, Mengtai, Dongfang Hope gets alumina supply from Inner Mangolia. The bauxite ore is imported mainly from Guinea.