Market data indicates that cash costs in the alumina industry span an exceptionally wide range from 2,350 RMB/ton to 2,950 RMB/ton. Large integrated enterprises with proprietary mines and energy advantages may achieve cash costs as low as 2,350-2,450 RMB/ton. In contrast, some enterprises in Shanxi and Henan that rely on externally purchased ore and face higher energy costs may have cash costs exceeding 2,800 RMB/ton. This structural disparity indicates that current prices have reached the survival threshold for some high-cost enterprises, forcing less efficient operators to consider production cuts or even shutdowns. However, low-cost enterprises still have some buffer room.
Under the traditional supply-demand analysis framework, widespread industry losses typically trigger production cuts, forcing supply-side self-adjustment and ultimately restoring a healthy supply-demand balance. Historical experience shows, however, that in industrial sectors like steel, coal, and aluminum, prices breaching cash costs do not necessarily signal imminent reversals or immediately trigger large-scale production cuts. More accurately, this represents the final buffer zone between industry psychology and production rigidity.
As seen in the coal industry from 2013 to 2015 and the steel industry from 2015 to 2016, prices falling below cash costs still resulted in prolonged bottoming-out periods lasting several quarters. Specifically, within the first six months, companies primarily maintain cash flow by reducing raw material inventories, delaying equipment maintenance, and negotiating extended supplier payment terms. Production adjustments mainly involve implicit output cuts (such as lowering feedstock grades or reducing operational efficiency), resulting in a gradual decline in official capacity utilization rates. Between six months and one year, some high-cost enterprises, facing tight cash flow and bank credit contraction, are forced to publicly announce production cuts or shutdowns, leading to a stepwise decline in industry operating rates. After nearly a year of sustained losses, some capacity begins permanent exit, industry M&A activity increases, and the supply structure is reshaped.
The current alumina market may only be transitioning from the first to the second phase.
Moreover, unlike previous cycles, while current alumina capacity is oversupplied, most facilities have undergone years of technological upgrades, enabling strong variable cost control. Factors like long-term contracts and regional economic employment constraints also limit immediate flexibility for adjustments. Meanwhile, new capacity continues to advance in an orderly manner, indicating that the industry's expansion momentum persists. This rigidity causes supply adjustments to lag behind price signals, suggesting that prices may hover below cost lines longer than the market anticipates. Therefore, the breakdown of cash costs resembles the beginning of a war of attrition.
Moreover, the current decline in alumina prices is gradually transmitting to the bauxite raw material end. Alumina plants are widely suppressing prices, import ore prices are showing signs of softening, and while rising freight rates temporarily support costs, persistent weak demand could passively shift cost support downward. This risk of cost erosion makes it unreliable to determine the bottom solely based on static cost calculations.
High alumina inventories—currently exceeding 4.5 million tons—create dual pressures: port and transit warehouse backlogs alongside overflowing raw material stocks at aluminum plants.
This inventory dilemma stems from diverging supply and demand dynamics. Alumina demand is constrained by aluminum production caps, while supply faces multiple pressures.
For the market outlook, the emergence of the following signals could signal an early recovery in industry supply-demand dynamics: First, significant production cuts by some enterprises due to cash flow disruptions, driving the operating rate below the critical psychological threshold of 75%. Second, inventory drawdowns lasting several consecutive weeks, indicating that the pace of supply contraction begins to outpace the weakness in demand. Third, bauxite prices demonstrating unexpected rigidity at a certain level, transforming cost support from expectation into reality. Beyond these factors, external variables such as shifts in the macroeconomic environment, the closure of import windows, and policy expectations could also serve as catalysts to break the deadlock.
Should none of these signals materialize, the tug-of-war over cash costs may become protracted.
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