Recently IAI released the production figures for August. Monthly production of China aluminum (including China’s estimated but unreported production) climbed to new highs again in August, increasing to 2,277kt, up 9% compared to the same period last year. The figures show that rising aluminium prices helped induce smelters to increase product output after a sluggish first half year, assisted by various subsidies from local governments.
According to AZ China’s research, the growth of total capacity was 19% compared to the same period last month, which was far greater than the monthly production growth. With regard August of 2014, the ratio between total new capacity and restarted capacity is at 2/3, which means more capacity came from current old and restarted smelters then from new builds. After the decline and tougher months of loss leading to widespread shutdowns before June, many smelters took advantage of rising prices to restart in recent months, hoping to recover their earlier losses as much as possible. Overall, previously halted capacities have now almost recovered by August.
In addition, a large proportion of the new capacity that entered the market in August came mainly from the Shandong, Inner Mongolia and Qinghai provinces. All of which have started close to full capacity and are gradually increasing their operational rates. No smelters in the Xinjiang province have come on-stream recently. According to our statistics, nearly 1 million tonnes of annual capacity in the Xinjiang province will come online for production in the coming months.
AZ China has forecast 26.5 million tonnes of production for this year, and based on the current increase in output plus new capacity set to enter the picture, we are confident our prediction will hold true.
Although financial concerns could cause concern for some smelters, the seasonal increase in demand, especially during the ‘golden October’ period should help maintain aluminum prices in the current range, which should stimulate smelters to produce more output. Longer term, as we approach the end of the year, prices are likely to soften slightly, as the market struggles to accept all the new metal. Demand indicators are steady to good, but not spectacular.
Alumina prices are also showing the effect of increased metal production, along with some operational problems at 2 refineries.
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