LMEWEEK-Elevated alumina costs to feed on China aluminium manufacturer profits

Healthy need and enhancing power products will develop strong tailwinds for aluminium output in China, while tightening up materials and lifting prices of basic materials bauxite and alumina will constrain producer revenues.

High output will weigh on global costs of aluminium used in the transport, building and packaging industries, further weakening incomes for companies in top manufacturer China.

China's aluminium producers have made rising revenues due to elevated costs of the metal on the London Metal Exchange (LME). striking near-two-year highs of $2,799 a metric load in. May.

Prices have relieved because May, however rebounded on Sept. 27 to a. 16-week high at $2,695, improved by a weaker dollar and a series. of supportive policies and stimulus from China.

State-backed research study home Antaike approximates the aluminium. market's average revenue hit 2,818 yuan ($ 401.68) per load in. the first half of this year, more than doubling from the 1,211. yuan per ton a year earlier.

Mentioning increasing prices and sales, companies including significant. producer Yunnan Aluminium reported sharp boosts. in first-half profit.

However, because June as aluminium costs began to slide,. these profits diminished to near 2,000 yuan per lot in August, still. was explained by smelters as affordable.

Higher alumina cost is most likely to limit our revenues,. keeping it at a level around 2,000 yuan that many smelters delighted. to preserve production, stated a source at a major aluminium. smelter source who preferred to stay confidential.

The most-traded alumina futures on the Shanghai. Futures Exchange closed at 4,200 yuan a ton on Sept. 27, up 25%. so far this year and 51% higher from when the agreement was. launched last June.

PRODUCTION POWER

Producer revenues have actually been helped by robust need in China,. where Antaike approximates primary aluminium intake rose 8.2%. in the first half of the year to 22.1 million heaps.

Experts at Macquarie anticipated a shortfall of 2.1 million. loads in the Chinese aluminium market this year, most likely to be. bridged by imports.

China represent around 43 million heaps, or 60%, of international. aluminium production approximated at around 73 million heaps this. year. That number is close to the capacity ceiling of 45 million. heaps set by the Chinese federal government in 2019.

That ceiling has actually supported the market's revenues, said. Liu Jie, a consultant at Wood Mackenzie, who expects this pattern. to continue till China's domestic aluminium scrap supply. boosts significantly.

Nevertheless, production will increase, particularly in Yunnan. province where supplies of power secret for aluminium smelting are. set to improve further after recording a boost of 18.5% in. electricity produced between January and July this year.

Shanghai Metals Market has raised its projection for Yunnan's. aluminium output in the 4th quarter to 10.90 million lots,. from 10.78 million tons previously, mentioning lower possibilities of. power-related production cuts during the dry season.

Greater production in general will push up costs of alumina, a. basic material represent about one third of the expenses for. making aluminium. Alumina is produced by refining bauxite.

We will not see an abrupt fall in alumina need in the. fourth Q4 like last year, stated Wood Mackenzie aluminium analyst. Chen Xinlin, adding that high costs of imported bauxite would. be a key obstacle for some smelters aiming to produce more.

(source: Reuters)