China’s Aluminium Output to Rise Amid Power Boost, Raw Material Costs Limit Profits
China's aluminium industry is poised for increased output as demand remains robust and power supplies improve. However, rising costs for essential raw materials like bauxite and alumina are expected to limit producer profits, posing challenges for the country’s aluminium sector.
Improved power availability, especially in Yunnan province, will support higher production levels. Analysts from Shanghai Metals Market forecast aluminium output in Yunnan to reach 10.90 million tons in the fourth quarter, slightly up from earlier estimates. The region saw a significant 18.5% increase in electricity generation between January and July this year, reducing the risk of production cuts during the dry season.
Despite the boost in production, the rising costs of raw materials are squeezing profit margins. Alumina prices on the Shanghai Futures Exchange have risen 25% this year, closing at 4,200 yuan per ton on Sept. 27. This upward trend, coupled with higher bauxite import costs, presents a significant challenge for Chinese aluminium producers. According to industry insiders, alumina alone accounts for about a third of aluminium production costs.
While producer profits surged earlier in the year due to high aluminium prices, which reached a near two-year high of $2,799 per metric ton on the London Metal Exchange (LME) in May, prices have since softened. However, they rebounded to $2,695 on Sept. 27, supported by a weaker U.S. dollar and favorable policies from China. The state-backed research firm Antaike noted that the industry's average profit reached 2,818 yuan ($401.68) per ton in the first half of the year, more than double that of the previous year. Yet, as aluminium prices slid since June, profits have fallen to around 2,000 yuan per ton by August, a level many smelters are content with.
China remains the world’s largest aluminium producer, contributing about 60% of global production, which is projected at 73 million tons in 2023. The government’s production cap of 45 million tons, set in 2019, has kept the industry’s profits stable, though imports are expected to fill a forecasted shortfall of 2.1 million tons this year.
