Aluminum oxide prices reached $510 per ton, hitting a two-year high. The price increase has stimulated aluminum oxide production in China, with new projects in Shandong, Chongqing, Inner Mongolia, and Guangxi to be put into operation in the second half of this year. Chinese aluminum oxide producers are increasing production to seize this opportunity of high stock prices.
The price of alumina has reached a new high in two years, and the price increase has stimulated the production of alumina in China, leading Chinese alumina producers to actively increase production. As global alumina prices reach their highest level in over two years, Chinese alumina producers are expanding their production capacity to seize this market opportunity.
According to the latest data from SMM International, the price of alumina in Western Australia soared to $510 per ton on June 13, reaching a new high since March 2022. Due to interruptions in alumina supply, the increase so far this year has surpassed 40%.
The significant increase in price has stimulated the production enthusiasm of the alumina industry in China. Monte Zhang, managing director of AZ Global Consulting, revealed that new projects in Shandong, Chongqing, Inner Mongolia and Guangxi are planned to be put into operation in the second half of this year. In addition, Indonesia and India are also actively increasing production capacity, and oversupply may occur in the next 18 months.
In the past 12 months, supply disruptions in China and Australia have significantly pushed up the market. For example, Alcoa Corp. announced in January the closure of its Kwinana alumina refinery in Western Australia with an annual capacity of 2.2 million tons. In May, Rio Tinto Group announced force majeure on alumina refinery goods due to natural gas shortages in Queensland. Force majeure is a legal statement that the obligations in the contract cannot be fulfilled due to uncontrollable reasons.
These events have not only driven up aluminum prices on the London Metal Exchange to a 23-month high, but also pushed up the cost of producing light metals in China.
However, as supply gradually recovers, the tight supply situation in the market is expected to ease. Colin Hamilton, head of commodity research at BMO Capital Markets, expects alumina prices to fall to levels close to production costs, around $300 per ton. Ross Strachan, an analyst at CRU Group, also agrees with this view and pointed out in an email that the situation of significant price increases should have ended unless there is another supply interruption. He expects the price to drop significantly later this year as alumina production recovers.
Nevertheless, Amy Gower, an analyst at Morgan Stanley, has put forward a cautious view. She pointed out that China has indicated the need to strictly control the addition of new alumina refining capacity, which may affect the supply-demand balance in the market. Gower emphasized in a report: 'In the long run, the growth of alumina production may be limited. If China stops increasing production capacity, the alumina market may be in short supply for a long time.'