Southwest China’s Yunnan province accounts for 11% of China’s aluminium output, and the word is that aluminium smelters here are having to reduce their operating rates. This is a requirement of the Chinese government as a drought has caused hydropower shortages in the province. The use of electricity during the smelting process has been cut by 15% to 30% from September 2022. This will mean a reduction of 800,000 tonnes to 1.6 million tonnes of aluminium production capacity.
Output in Yunnan had already been reduced by Sichuan smelters, who cut 920,000 tonnes of capacity in August, accounting for 2% of China’s total. How long the Yunnan power cuts last will be determined by the weather in the region, and how quickly it improves.
Despite this situation, China’s aluminium production hit record highs in August, having surged by 9.6% year-on-year. This has accumulated to 3.51 million tonnes, according to data from the National Bureau of Statistics. The first eight months of 2022 saw output gain 2.1% to 26.47 million tonnes. This was held back in September by the power rationing in the province. In 2022 China’s exports of unwrought aluminium and aluminium products have risen by 31.5% to 4.7 million tonnes. This figure is expected to rise further, as a consequence of producers in Europe and the USA slashing their capacity in the previous 12 months. This is due to Russia’s invasion of the Ukraine, and the subsequent energy crises.
In August 2022, China exported 540,400 tonnes of unwrought aluminium and aluminium products. An increase of 10.2% in comparison to the year before, while imports slowed by 19%. Imports were not a priority as China had record high production of aluminium, along with lower demand, and a limited overseas supply.
China did import 200,400 tonnes of unwrought aluminium and products in August though. China’s raw material ‘alumina’ exports are increasing steadily, with annual shipments reaching 720,000 tonnes. This is in comparison to just 100,000 tonnes the year before, again a result of the Ukrainian war. Russian buyers had to seek alternatives as their traditional supplies were cut off. Despite the issues faced by the Chinese and European smelters, production of aluminium rose 3.5% year-on-year globally. It amounted to 5.89 million tonnes by August. The global year-to-date output totalled 45.448 million tonnes, with European smelters cutting 1.18 million tonnes of output.
There are likely to be further smelter closures and curtailments in production as Europe is in the throws of winter and the war with Russia rages on.
The aluminium market has suffered from factors like China’s property crisis and the strength of the dollar. Although there were recent signs of recovery for China’s economy as industrial production climbed. London Metal Exchange [LME] aluminium prices have dropped more than 40%, and there are fears that Russian supply could emerge at LME warehouses in Asia.
Rusal, a Russian producer of aluminium is reportedly seeking to deliver some of its metal directly to these LME warehouses. This is prompted by a struggle to find buyers, and it may be allowed to deliver a limited amount of aluminium to the warehouses. However, increasing amounts could result in issues. For one it could put more pressure on prices, along with a growing stock of aluminium in LME warehouses, that buyers refuse to touch.