Recently, the price of the main alumina futures contract has fallen below 2500 RMB/ton, dropping below the cash cost for some companies.

According to relevant data, in November, domestic bauxite production was 4.698 million tons, a slight decrease of 1.6% month-on-month and a decrease of 5.3% year-on-year; from January to November, cumulative domestic bauxite production reached 55.213 million tons, a year-on-year increase of 4.2%. Currently, bauxite production in northern China is still in the gradual recovery phase, and supply is not very stable, resulting in tight supply in the region. As of last Thursday, alumina refineries had 53.212 million tons of bauxite in stock, with inventory sufficient for nearly 84 days of use, which is generally at a high level. Domestic bauxite prices remained stable, while imported bauxite prices continued to decline slightly. The CIF price of 45% Al, 3% Si bauxite from Guinea at major ports in Shandong decreased to US$70/dry ton.

On the import side, in October, China imported 13.77 million tons of bauxite, a decrease of 13.3% month-on-month and an increase of 12.3% year-on-year. From January to October, China's cumulative bauxite imports reached 170.96 million tons, a year-on-year increase of 30%, with imports from Guinea accounting for 74%. Currently, bauxite shipments from Guinea are stable, and there was a surge in shipments from Australia before the rainy season, resulting in relatively stable future arrivals. As of the end of last week, domestic bauxite port inventory was 26.4354 million tons, a decrease of 1.475 million tons compared to the previous week, representing a significant decline.

In November, domestic production of metallurgical-grade alumina reached 7.4394 million tons, a decrease of 4.4% compared to the previous month and a slight increase of 1.4% year-on-year. From January to November, cumulative domestic production of metallurgical-grade alumina totaled 81.897 million tons, a year-on-year increase of 7.4%. In November, some enterprises in northern regions experienced temporary production cuts and equipment adjustments, while operations in southern regions remained relatively stable.

Since the second half of the year, domestic alumina production capacity has remained stable, with no new capacity coming online. As of last Thursday, the total installed capacity of metallurgical-grade alumina nationwide remained at 110.32 million tons/year, with operating capacity at 87.832 million tons/year. The weekly operating rate increased slightly by 0.15% week-on-week, reaching 79.62%. The completion of maintenance at some enterprises in Guizhou province led to a rebound in the operating rate, although the overall operating capacity was slightly lower than the previous high.

Alumina prices continue to decline, having now fallen below the cash cost line for some companies.  The likelihood of companies reducing production due to profitability issues is increasing, but operating capacity remains high, and no large-scale production cuts have occurred yet. On the one hand, there is an expectation of lower raw material prices; on the other hand, companies need to ensure the fulfillment of long-term contracts and secure market share for next year's contracts. Overall, the alumina market maintains a supply surplus.

As of last week, the total inventory of alumina at the Shanghai Futures Exchange was 258,800 tons, with warehouse receipts totaling 254,900 tons. Warehouse capacity in the Xinjiang region is nearing full capacity, and the influx of warehouse receipts into the market will put significant pressure on prices. Domestic alumina inventory totaled 5.061 million tons, and is still on the rise; electrolytic aluminum companies have 3.516 million tons of alumina in stock, indicating relatively sufficient raw material reserves.

Spot prices for alumina remained relatively firm. Last Thursday, the alumina index was reported at 2,804.9 RMB/ton, a decrease of 16.48 RMB/ton from the previous week, and a premium of 300 RMB/ton compared to the settlement price of the main futures contract. Regarding spot transactions, last week, the ex-factory price of alumina in Henan province was 2,780 RMB/ton, Xinjiang province procured 10,000 tons of spot alumina at a delivered price of 2,948 RMB/ton, and transactions also occurred in southern China, with ex-factory prices ranging from 2,800 to 2,835 RMB/ton.

Looking at the downstream sector, in November, China's electrolytic aluminum production reached 3.637 million tons, a decrease of 2.8% month-on-month and an increase of 1.5% year-on-year; from January to November, China's cumulative electrolytic aluminum production reached 40.14 million tons, a year-on-year increase of 1.8%. In November, the installed capacity of electrolytic aluminum increased, and the operating capacity saw a slight increase, with the capacity utilization rate of enterprises remaining at around 96%. In the first two weeks of December, weekly electrolytic aluminum production remained at around 856,000 tons.

Currently, profits in the industry chain are still concentrated in the electrolytic aluminum sector. In October and November, the theoretical spot profit for electrolytic aluminum exceeded 5,000 RMB/ton, and companies maintained high operating capacity. However, due to capacity constraints, there is limited room for further improvement in the future.

Overall, in the short term, alumina futures prices have a need to rebound, but the pressure from supply and inventory remains significant. Therefore, the potential for a price rebound in the later period is limited, and changes in commodity market sentiment need to be monitored.

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