FOCUS: Could China become an exporter of alumina?
With a widening differential between Chinese domestic and international alumina prices and lingering tightened availability of spot material in the Atlantic, China could potentially become an exporter of the raw material, according to market participants.
Foreign aluminium smelters now have an eye on Chinese-produced alumina due to the tightened conditions in the Atlantic following the production curtailment at Hydro’s Alunorte refinery in the Brazilian state of Pará.
At least one Atlantic-based smelter has approached Chinese suppliers for the aluminium raw material, market sources told Metal Bulletin.
In March, Norwegian aluminium producer Hydro was ordered to halve output at Alunorte, which has an annual nameplate capacity of 6.3 million tonnes, due to concerns over possible water contamination following heavy rainfall in the region.
Hydro subsequently declared force majeure at Alunorte, saying it had issued the notice due to the production cut as well as a lack of clarity into what measures it would take to return the facility to normal.
Since then, alumina prices have moved up quickly.
Metal Bulletin’s benchmark daily fob Australia alumina index settled at $447.30 per tonne on Thursday March 29, up 27.8% from March 1’s calculation of $349.88 per tonne.
Meanwhile, Metal Bulletin’s inferred fob Brazil alumina index stood at $457.39 per tonne on March 29, compared with $348.53 per tonne at the start of March.
Conversely, domestic alumina prices in China have been under pressure since the beginning of March due to weakened primary aluminium prices on the Shanghai Futures Exchange and low buying interest from consumers.
Metal Bulletin assessed the Chinese domestic alumina price at 2,650-2,700 yuan ($422-430) per tonne on March 29, down from an assessed price of 2,700-2,800 yuan per tonne on March 1.
Taking into account an inland logistics fee and port handling fee of around 100 yuan per tonne, as indicated by market sources, the potential quotation for domestically-produced alumina in China would be approximately $436-444 per tonne basis fob China.
China also does not apply any export tariffs to domestically-produced alumina, market participants told Metal Bulletin.
“The margin is not great enough yet to push foreign smelters to purchase Chinese alumina if we take freight differentials into consideration. However, if international alumina prices continue to move up, theoretically speaking, the export window could open for the first time in history,” a trader said.
With restricted operations at Alunorte providing the impetus for spot alumina prices to climb higher, some participants have suggested that prices for Australia-origin material could reach as high as $480 per tonne - a level last reach during late October last year.
“Refineries in Shandong and Guangxi province, in theory, are able to export alumina,” a producer said.
But consensus is that even if the export arbitrage window opened wide enough to allow local Chinese refineries to achieve a proper margin, the market would not see much outflow in the near future due to the fact that Chinese refineries lack experience in selling alumina outside China.
“International traders may seek to export Chinese alumina to the international market to take advantage of the price differentials, but they may not be fully driven to export more than one or two shipments because they know they could make more money when the shortage outside China persists and any extra supply would jeopardize their current margins in the international market,” a consumer told Metal Bulletin.
On top of this, the differential between Chinese domestic and international alumina prices would soon narrow once Chinese alumina begins to be exported and domestic supply starts to tighten.
Product quality could be another potential hurdle for Chinese alumina producers looking to export their material, market participants said.
“International smelters may still have concerns over the quality of Chinese alumina. Therefore, unless they couldn’t find any materials from other origins, it would not be an easy decision for them to buy Chinese materials,” a second trader said.
“Exporting Chinese alumina has been an issue frequently discussed by market participants for many years. Given no one has ever succeeded in exporting Chinese alumina in the past few years, I don’t’ think anyone is able to do it this year,” a third trader said.