China’s demand for imported alumina remains firm despite virus; freight rates drop

The coronavirus outbreak has not yet affected buying demand in China for imported alumina, with material from Western Australia still being shipped to China and fresh deals concluded, market participants told Fastmarkets.

A deal was concluded on Tuesday February 4 for 30,000 tonnes of Western Australian alumina at $299.50 per tonne on a cif China basis.

The cargo is for March loading and to either the port of Qingdao or Bayuquan, China. It was the first deal reported since before Chinese New Year.

Prior to the Lunar New Year, Chinese demand underpinned fob Australia alumina prices with several deals concluded for shipment to China.

“China was buying a lot before Chinese New Year and people were worried what the virus would mean. But there is still a lot of demand; they want alumina,” a producer said.

“We are getting inquiries as normal and the numbers are pretty similar to before on a cif basis. And previously agreed cargoes are still en route,” the producer added.

Sources said that smelters in China remain open despite the coronavirus outbreak in Wuhan, and some regions in China remain closed until February 10 due to the extended holiday period.

“Most smelters are operating normally and nothing has stopped. Chinese consumers still need to try and fix their March and April loading cargoes to feed the smelters,” a trader said.

The arbitrage window for delivering Western Australian alumina into China has been open for a number of months. Since September 2019, at least 460,000 tonnes of Western Australian alumina has traded on a cif China basis.

The Fastmarkets alumina index, fob Australia, was calculated at $278.94 per tonne on February 4. Market participants said that anywhere around $300 per tonne and below makes it profitable for China to import alumina.

On September 9 2019, 25,000 tonnes traded at $232 per tonne cif China, but between mid-September and now, all tonnage has concluded between $299.50 and $303.50 cif China.

“We have been shipping to China for the past few months and currently there are no signs things will change. It’s not easy to turn the smelters off,” a second trader said.

“It is necessary for the smelters to work and as long as they are still up and running, cargoes will continue to be sold to China,” the second trader added.

Freight effect
Freight rates from Australia to China are significantly lower since the virus outbreak, market participants noted.

At the end of 2019, the majority of participants assessed the netback from cif China to fob Australia at close to $24 per tonne. This netback has since fallen to closer to $18 per tonne.

“Freight has literally plummeted and it makes shipping to China much cheaper at the moment; everyone is locking in their rates,” the producer added.
Some traders noted the lower freights may encourage even more buying from China over the next few weeks, as long as ships and transport is available.

“Ocean freights have weakened by around $4 per tonne, which might be only the start of further downward pressure. They have already weakened on the back of depressed time-charter levels and plunging bunker prices – both reacting to the coronavirus outbreak in Wuhan province,” a market source added.

Possible problems down the chain
Market participants noted that refineries in China are more likely to suffer from virus-related disruption than smelters.

Raw materials commonly travel through provinces, whereas a number of smelters have their refineries enclosed in the same facilities or can ship alumina into nearby ports directly.

“I hear the problem could be the raw materials – some of the bauxite reserves are in different provinces. There is a lot of bauxite in China – the reserves are huge, but can they get it?” a second market source said.

A thrid trader said they would need to keep a close eye on logistics and continuously monitor the ports with the situation ever changing.

“There aren’t trucks or truck drivers. Who would want to drive the trucks across cities now even if you were allowed?” the third trader said. “The supply chain could be disrupted, but any disruption for alumina refineries could lead to more imports for the next few months.”

For now, the story for alumina prices remains the same as before the Lunar New Year, with benchmark fob Australia prices rangebound. The Fastmarkets alumina index has remained between $275 and $279 per tonne since December 12.

“Nobody knows exactly what the situation [in China] is or will become, but demand seems the same and we haven’t heard of significant port disruption, so prices are the same for now,” the first trader concluded.