What is the reason for the surge in alumina?

1. Upstream raw materials: "inside" can not be opened, "outside" can not keep up

There are many reasons for the continued surge, and the shortage of raw materials is the key. As we all know, bauxite is the raw material for the production of alumina. However, relative to the world, China's bauxite resources are relatively scarce, and the degree of security of bauxite resources is low.

According to the US Geological Survey's Mineral Summary 2023, as of the end of 2022, the world's proven bauxite reserves are about 31 billion tons, and the forecast resource is 55 to 75 billion tons. Africa accounted for 32 per cent, Oceania 23 per cent, South America and the Caribbean 21 per cent, Asia 18 per cent and other regions about 6 per cent. From the perspective of national distribution, the proven bauxite resources are mainly distributed in Guinea, Australia, Brazil, Jamaica, Vietnam, Indonesia and other countries and regions, and China's proven bauxite reserves only account for 2.3% of the world's total.

According to the latest data from the National Bureau of Statistics, in terms of production, in the first three quarters of 2024, alumina production was 63.13 million tons, an increase of 2.4% year-on-year; In terms of imports, the physical import volume of bauxite in the first three quarters of 2024 was 119 million tons, an increase of 12.1% year-on-year. It is clear that with the growth of alumina production, the demand for ore will also continue to grow.

From the perspective of mining, China's domestic ore has not been fully released due to environmental protection and other issues, and the dependence on bauxite imports continues to rise. Shanxi Province, the benchmark for domestic bauxite production, is expected to fall 45 to 50 percent this year due to coal and bauxite accidents. A similar situation has occurred in Henan province, where strict environmental inspections have led to mine closures and a 40-50 per cent reduction in output. Open-pit mines that are difficult to resume production are facing the dual pressure of safety and policy.

China is the world's largest bauxite trade, imports accounted for about three-quarters of the world, especially since 2019, imports of bauxite has been more than 100 million tons for five consecutive years, in 2023, China's cumulative imports of bauxite 141.38 million tons, an increase of 12.7%, another record high.

Imported ore is mainly dependent on Guinea, but affected by backward infrastructure and transportation difficulties, spot supply is seriously insufficient. Earlier this month, Emirates Global Aluminium announced that bauxite exports from its Guinean subsidiary had now been suspended by customs, sparking buyer panic. Alumina inventories at Chinese ports fell to their lowest level since at least 2015 after bauxite supply disruptions at UAE Global Aluminium.

2. Downstream: The demand is too big!

The downstream application of alumina is very wide, mainly including electrolytic aluminum, ceramics, refractory materials, abrasives, flame retardants and other fields. The upstream bauxite supply shortage corresponds to the strong domestic downstream demand, especially the support role of electrolytic aluminum demand is particularly obvious. Electrolytic aluminum is the main source of aluminum products in China, and the production of electrolytic aluminum cannot be separated from alumina as raw material.

In the third quarter, domestic electrolytic aluminum operating capacity remained high, and as of the end of September, electrolytic aluminum operating capacity was 43.51 million tons, and aluminum plant demand for alumina also remained strong. As of October 11, the aluminum oxide inventory in the electrolytic aluminum plant 2.828 million tons, down 8.2% from the same period last year, down 7.4% from the end of the second quarter, aluminum plant replenishment has a strong replenishment demand. This has also led to a rise in the spot price of alumina, and the price of alumina has risen simultaneously.

3. Rising costs

Due to the shortage of ore, the price of imported ore has also been gradually rising since the beginning of the year, which has directly led to a sharp increase in the production cost of alumina. On the one hand, the high cost of raw materials has supported the price of aluminum, but on the other hand, it has also squeezed the production profit margin of enterprises.

Alumina is on a wild ride

Alumina prices all the way up, some people happy, some people worry.

In the first half of 2024, alumina enterprises released semi-annual reports, China Aluminum Industry, China Hongqiao, Nanshan Aluminum industry, Tianshan Aluminum industry released semi-annual reports, and each company mentioned in the annual report that the performance growth of alumina sector is the main factor for the explosive growth of the performance of each company in the first half of 2024.

While the profit space of alumina enterprises is constantly rising, the production profit of electrolytic aluminum enterprises is shrinking. According to Yao Xin, a researcher of Shanghai Steel Aluminum Division, said in an interview that compared with the profit peak of the year, the profits of electrolytic aluminum producers have shrunk significantly in recent months.

So, how long will alumina be "crazy"?

Industry insiders analysis, the current ore tension has not yet completely changed, the downstream is still in a high demand pattern, superimposed winter storage, Spring Festival stock is expected to increase, as well as the north heating season under the environmental policy of alumina production facing uncertainty, it is expected that the fourth quarter alumina spot prices still have the possibility of continuing to rise.

At present, the downstream demand for alumina is still growing, want to alleviate the contradiction between supply and demand, only through the incremental release of the supply side, including the opening of domestic mines, the release of domestic alumina new production, and the opening of the import window. Judging from the actual situation of the current market, the domestic mine remediation efforts are still increasing, and the situation of domestic ore mining is highly likely to continue. At the same time, the current overseas alumina supply also maintains a tight pattern, and some new investment and production resumption progress is slow