Speaking on the metals debate panel at the London Metal Exchange’s seminar, Kaneva said there were expectations that production growth would increase this year - but the reality has been a different story.

“While the headlines were dominated by Rusal and Alunorte, [but] for me what was the most surprising was the supply developments and what was happening there,” Kaneva said. “Growth of production for aluminium has been downgraded not only in China but the rest of the world too.”

Chinese primary aluminium production this year has been much lower than expected. In December 2017, JP Morgan estimated that there would be nearly 36 million tonnes of aluminium produced in 2018, but it has since removed around 2 million tonnes from that estimate, while also downwardly revising its ex-China production expectations.

“The main reason is that new projects that were starting or due to ramp-up production have been very slow to do so,” Kaneva said.

This is said to be due to rising raw material costs following the alumina price spike this year.

Fastmarkets MB’s benchmark fob Australia index hit a high of $707.75 per tonne in April amid supply tightness, a part shutdown at Hydro’s Alunorte and US sanctions against Rusal.

Alumina prices have fluctuated since but remain at increasingly high levels, with the benchmark index at $531.67 per tonne on Friday October 5.

High raw materials costs have left smelters with increasingly squeezed margins.

Chinese smelter margins have declined by almost 60% since their peak in mid-April and are down 35% since the end of July,” Kaneva said.

“We estimate that around 40% of global aluminium capacity is likely [to be] cashflow negative at the current spot price,” she added.

This would explain the increasing drawdown in stock levels, Kaneva said. Available LME aluminium stocks are currently at their lowest level since 2006, with just 609,625 tonnes available on-warrant in warehouses.

The LME price was most recently trading at around $2,072 per tonne, but Kaneva said that aluminium is pricing-in risk due to trade tensions.

“On the trade war, we assign low odds to a US-China trade ceasefire given the large gap between US demands and Chinese offers. However, our analysis shows that base metals are already pricing-in a worst-case-scenario hit to global growth,” Kaneva added.

JP Morgan’s assessment of the outright aluminium price places the current value of aluminium at $2,250 per tonne.

“We do believe that, looking at the fundamentals, the price will be around $2,250 per tonne for the next few quarters. But in the second half of 2019, it will be a different story,” Kaneva told the panel discussion.