In the first half of 2022, China becomes a net exporter, with primary metal exported as far as Europe and the United States to capitalize on high physical premiums. Premiums are now significantly lower. European duty-not-paid prices have fallen from more than $600 per tonne in May to the current LME spot price of $250. While high energy prices are putting a damper on European smelter output, the region is also bracing for a recessionary hit to demand.
China appears to be filling some of the void, as the country’s own production momentum slows as it attempts to emerge from quarantine and embargo. The surge in primary aluminum exports from China is to blame. Outbound shipments totaled 190,000 tons in the first eight months of the year, the highest export volume since 2010. Between September and November, exports fell to 5,000 tons, with large shipments to Europe and the United States being replaced by smaller shipments to African destinations. Imports were low compared to previous years until last month, primarily for Russian metals, which have been avoided by Western buyers since the start of Russia’s “special military operation” in Ukraine in February.
In November, Russian imports reached a 2022 high of 56,000 tons, but its share of imports fell to 51 percent from 85 percent in June. The balance came from a variety of countries, indicating a pull from China rather than a push from Russia. Notably, since the structural shift in 2019, China’s imports of unforged aluminum alloys have remained strong, at around 100,000 tons per month. This shift coincides with a decrease in aluminum scrap imports ahead of the 2020 ban. At the last minute, the ban was lifted and replaced with a stricter purity threshold. Scrap imports have since increased by 60% this year, with no effect on alloy flows. China’s new primary aluminum import demand appears to be contradictory to weaker demand due to the embargo and strong domestic production growth.
Collective starts in China have fallen by nearly 1.2 million tons since August in terms of annualized production. This is less than the 2 million ton reduction expected by the end of 2021, but it still significantly reduces the production surge seen earlier in the year. While there are no nationwide state power restrictions for this year’s winter heating season, provinces have delegated authority to manage their local power balances, and the hit to smelters has been increasing. Due to the ongoing drought in the hydropower-rich province of Sichuan, the province briefly imposed power restrictions on industrial users, including aluminum smelters, in August.
Yunnan ordered its smelters to reduce their start-up rates by 10% the following month for the same reason, and increased the requirement to 20% in October. Due to weak markets and pressure from local winter heating restrictions, several smelters in Henan province cut output by 10% last month. Seasonal power pressures have reportedly spread to Guizhou province this month, with local smelters reducing capacity by up to 31%. Guizhou is a small aluminum province with an annual output of about 1 million tons, but Yunnan has emerged as a growing production hub thanks to its green energy credentials. Hongqiao, China’s largest private operator, has not been deterred by this year’s power restrictions and is increasing capacity there. The concentration of smelters in Yunnan and Sichuan, on the other hand, exposes China’s domestic supply chain to new risks in the form of seasonal rainfall levels.
The impact of rotating shutdowns and the real estate sector downturn on domestic demand obscures the magnitude of China’s cumulative production hit. The partial removal of covid-19 restrictions, despite the risk of a wave of Omicron infections, is expected to rev up Chinese growth in 2023. Any recovery momentum will necessitate the replenishment of aluminum inventories. Stocks on the Shanghai Futures Exchange have fallen 71% since January 1, and now stand at 92,373 tons, near their lowest level since 2016. It is too early to tell whether last month’s increase in imports heralds a recovery in the domestic aluminum sector, but it does signal a shift in market flows. Earlier this year, Western deficits drew large amounts of metal from Asia, including China. As a result, supply chain tensions have subsided, and the market’s attention has shifted to weak demand and the possibility of large shipments of aluminum to LME warehouses.
With the recurring impact of the love epidemic over the last three years, stocks in the Chinese market have dwindled and will need to be replenished with some metal from the spot market, the amount of which will depend on how many of China’s provincial governments balance their power systems over the winter months. Yutwin Aluminum is a professional aluminum sheet and foil production and sales company that has been committed to the development of aluminum alloy processing technology, the production of aluminum alloy used in various fields such as aerospace, automotive manufacturing, food packaging, kitchen supplies, and other packaging manufacturing industry, Yutwin Aluminum manufactures flat 1235 and 3003 aluminum foil, and we strictly inspect and control the quality and production cycle of our foil products. Our products can also be customized to meet the needs of our customers; please contact us for more information.
Post time: Dec-24-2022