Improved prices encouraging smelters to restart

China’s aluminium price has been rising since Chinese New Year. While it has been good news for producers, we at AZ China have been warning that as the price approaches and clears the RMB 12,000 barrier, idled smelters will restart. It seems we underestimated the situation. As soon as the SHFE aluminium price closed in on RMB11,500, smelters began to restart pots. According to our research, 7 companies have started or planned to restart the production since February. Already in February, operating capacity has increased by 180,000t, as the first of those 7 smelters have already started contributing metal.

We checked the 2015 Q4 cash cost from the above companies. Only one company’s cash cost is lower than the present-day spot price. The rest of the companies will all lose money while metal prices hover around RMB 11,500. but with the downstream semi-finished goods industry now back in full swing, demand appears to be building, leading smelters to believe that the prices will hold even after they re-enter.

It’s not as if these smelters are making these decisions in a vacuum. We understand local and regional governments are encouraging plants to restart, and we are seeing a new wave of subsidies being offered to plants.

Sometimes market sentiment can be self-fulfilling, at least in the short term. China has had a good with the week-long parliamentary meetings, the “liang hui”, spring is coming, and some market sectors are showing signs of improvement. But sentiment is a blunt instrument. When sentiment improves, it improves for both buyers and sellers. Buyers are boosting the price, especially the future price, and that is encouraging producers to restart their plants. We think that the price rise will lose steam in the coming weeks, as the market realises that there is still plenty of metal available to the market.

Do you want to know more about China’s fleet of idled smelters, potlines under construction and plants that have idled? Consider subscribing to AZ China’s Pipeline Report. This monthly publication comes out in Excel format so you can add the data to your own research. Because it’s an Excel spreadsheet, it’s hard to give a sample, but if you are interested in subscribing, we can send you an old edition. Simply contact us at AZ China, enquiries@az-china.com.