I. Key Analysis
1. Ample Bauxite Supply
As of September this year, China's monthly bauxite imports reached 15.88 million tons, a year-on-year increase of 38.14%, approximately 4.384 million tons, a significant increase. However, this represents a month-on-month decrease of approximately 2.41 million tons, showing a seasonal decline. Cumulative imports this year totaled 157 million tons, a year-on-year increase of approximately 32%, approximately 38.105 million tons. In terms of sources, Guinea and Australia remain the main importers, with Guinea being the core. This year, cumulative imports from Guinea reached 118 million tons, a year-on-year increase of 40.3%, approximately 34 million tons, accounting for 75% of total imports. Cumulative imports from Australia this year totaled 27.712 million tons, a year-on-year decrease of 5.4%, approximately 1.5 million tons, accounting for 17.6% of total imports. Overall, imports from Australia this year have been moderate, with a slight decrease and minimal impact. However, the significant increase in imports from Guinea is the core source of the increased domestic bauxite supply this year.
Looking at domestic bauxite inventory data, as of October 17th, according to Mysteel data, domestic port bauxite inventory stood at 28.689 million tons, a week-on-week increase of 653,000 tons, remaining at a high level. This absolute value is at a near four-year high for the same period, significantly higher than the same period last year (approximately 7.219 million tons). Meanwhile, imported seaborne inventory was 11.9243 million tons, a week-on-week decrease of approximately 1.581 million tons, slightly lower than the same period last year, but still at a relatively high level for the same period in the past four years. Therefore, we can conclude that domestic bauxite supply is sufficient in the short term and will not affect normal alumina production activities.
2. Weekly production remains high, while inventories continue to accumulate.
According to Mysteel statistics, as of October 17, domestic alumina production capacity reached 112.55 million tons, unchanged since the end of July. Operating capacity reached 96.8 million tons, a weekly decrease of 1.4 million tons and an increase of 100,000 tons from the end of September. Weekly production reached 1.861 million tons, a weekly decrease of 2,000 tons, but remained at a high level of 1.86 million tons per week, significantly higher than the same period last year. From the perspective of the weekly production ratio of alumina and electrolytic aluminum, as a direct downstream of alumina, domestic electrolytic aluminum production directly reflects domestic demand for alumina. As of October 17th, according to Mysteel statistics, domestic weekly alumina production was 1.861 million tons, while weekly electrolytic aluminum production was 852,900 tons, resulting in a ratio of 2.18. This represents a slight weekly change, but is significantly higher than the same period last year (2.05). Compared to the standard smelting ratio of 1.93, domestic alumina is still in oversupply.
As for domestic alumina inventories, according to Mysteel statistics, as of October 17th, domestic alumina inventories were 4.639 million tons, a weekly increase of 63,000 tons and compared to 134,000 tons at the end of September. This trend indicates that inventories have continued to accumulate since the end of May this year, totaling approximately 845,000 tons, reaching an absolute high for the same period last year and significantly higher than the 3.918 million tons at the same time last year. Looking at the breakdown, port inventories increased by 29,000 tons week-on-week, alumina plant inventories remained unchanged, electrolytic aluminum inventories increased by 11,000 tons, and platform/transit inventories increased by 23,000 tons. Currently, the domestic alumina smelting industry still maintains some profit margins, and there have been no reports of production cuts. Therefore, the oversupply situation in the alumina industry is expected to continue, and inventories may continue to increase until prices fall below smelting costs, prompting the industry to proactively reduce production to control operating capacity.
3. Imported goods are about to arrive at ports, and domestic smelting profits continue to decline.
Looking at overseas alumina price trends and domestic import and export profit and loss data, as of October 17, the Australian alumina FOB price was $323/ton, unchanged from the end of September, but down $45/ton from the end of August, a decrease of approximately 12.2%. Domestic spot prices fell by approximately 8.26% during the same period, indicating that overseas alumina was in greater surplus and its price trend was weaker in September. Therefore, from the perspective of domestic import profits, the widening alumina import profits in September, the opening of import channels, and the inflow of some goods, combined with shipping schedules, will likely lead to their arrival at ports in October and November, exacerbating the domestic alumina oversupply situation.
According to Myteel data, as of October 3rd, the total production cost of the domestic alumina smelting industry was 2854.3 yuan/ton, and the average profit was 135.4 yuan/ton. Since early August, smelting profits have continued to narrow. With the recent further decline in alumina spot prices, it is expected that industry smelting profits will further shrink to below 100 yuan/ton. Considering the cost differences between the north and south of the domestic alumina smelting industry, high-cost regions are expected to be experiencing smelting losses. Although there are currently no reports of production cuts or shutdowns, as alumina spot prices continue to fall, smelting profits will inevitably continue to narrow until they enter the loss-making zone. At that time, high-cost regions will face even greater production pressure, and the probability of proactive production cuts or shutdowns is higher.
4. Continued Increase in Warehouse Receipts
Looking at the recent month's warehouse receipt data for domestic alumina, the number of warehouse receipts has fluctuated significantly this year, generally falling into three phases. First, before mid-April, with expectations of oversupply and continuous inventory accumulation, futures prices fell sharply, leading to strong hedging intentions in the industry and a continuous increase in warehouse receipts. Second, from mid-April to the end of July, spot and futures prices stabilized and rebounded. Domestic alumina inventories were generally low and had fallen from their highs. With tight spot supply, warehouse receipts continued to flow out, reaching extremely low levels by the end of July. Finally, from the end of July to the present, with the rebound in spot prices, domestic smelting profits have recovered, operating capacity has rebounded rapidly, inventories have accumulated, and based on expectations of oversupply, warehouse receipts have continued to increase. Data shows that warehouse receipts, significantly higher than the same period last year, will inevitably exert strong downward pressure on futures prices. Analogous to the market trends and inventory changes in the first half of the year, it is expected that warehouse receipts can only be successfully sold off once domestic inventories are digested.
II. Summary and Outlook
Based on the current situation, we believe that:
Domestic bauxite inventories are high, with ample supply, and will not affect domestic alumina smelting; current operating capacity and weekly output remain high, smelting profits continue to narrow, and the weekly output ratio of alumina to electrolytic aluminum still indicates oversupply; overseas alumina prices were weaker in September, opening import channels and allowing some supplies to flow in, expected to arrive in October and November, exacerbating the domestic oversupply situation; domestic alumina inventories continue to accumulate, reaching historically high levels for the same period, significantly higher than the same period last year, and no turning point has yet been seen; exchange warehouse receipts have been increasing continuously since the end of July, significantly higher than the same period last year, putting downward pressure on domestic prices.
Based on the market situation, the negative factors outweigh the positive ones, and prices are not expected to improve in the short term. It is recommended to focus on the support of smelting costs. The core influencing factor going forward will be the willingness of the domestic smelting industry to actively reduce operating capacity. Once smelting profits enter the loss zone, the industry behavior and price rhythm of the first half of the year may repeat itself.