Since March, supported by rising energy costs, escalating geopolitical tensions and surging sea freight rates, the cost-side support for alumium oxide has been significantly strengthened, driving the oscillatory strength of alumium oxide futures prices. At present, the price of the main alumium oxide contract has approached the threshold of 3,000 RMB per ton.

China bauxite production grows steadily with slight increases

Import costs rise

On the domestic ore front, from January to February, the cumulative output reached 10.0967 million tons, a year-on-year increase of 6.16%, and it is expected to gradually recover after March. Guangxi, the country's most major bauxite-producing area, recorded an output of 1.8848 million tons in February; driven by the "intensive development of rich ore" policy, Guizhou's output in February increased by 37.83% year-on-year, with the pace of resumption of production and work accelerated; Henan's output surged by 55% year-on-year, and new projects are progressing in an orderly manner; Shanxi's output in February dropped by 19.91% year-on-year, facing phased pressure. At present, the supply of domestic ore is relatively sufficient, prices are stable, and there is continuous game between the upper and lower reaches.

In terms of imported ores, China's import sources are highly concentrated in Guinea and Australia. According to SMM data, in the week ending March 13, the outbound shipment volume from Guinea was 4.612 million tons, a month-on-month decrease, as some mines adjusted their shipment rhythm due to fluctuations in sea freight rates; the outbound shipment volume of bauxite from Australia was 584,800 tons, a month-on-month increase, and shipments will grow steadily as the rainy season ends. In the same period, the weekly arrival volume of imported ores was 5.6356 million tons, remaining stable in the short term, but attention should be paid to the impact of sea freight rate fluctuations on future arrival volumes.

In terms of inventories, SMM data shows that as of March 12, the domestic bauxite inventory at ports stood at 21.1305 million tons, a high level in recent years; the bauxite inventory at domestic sample alumina refineries was 59.6195 million tons, an increase of 70,690 tons week-on-week, mainly due to some alumina refineries picking up goods from ports for warehousing. At present, the ample inventory at sample alumina refineries has strengthened the bargaining power of buyers. Regarding import prices, the geopolitical situation has pushed up crude oil prices. Last week, the sea freight for Guinea's bauxite shipped to China rose to 29 US dollars per wet ton, driving the average CIF price of Guinea's bauxite to 64 US dollars per ton. Meanwhile, Guinea has introduced new policies such as raising export tariffs to 10% and mandating the construction of local alumina refineries. The upward shift in the import cost center has provided bottom support for ore prices.

Loose Supply of Alumina

High Inventory Levels

On the supply side, domestic alumium oxide supply contracted periodically in February. Since March, with the resumption of production by enterprises that had carried out overhauls, production in Shanxi, Henan, Guangxi, Guizhou and other regions has gradually recovered. SMM estimates that in March, the domestic output of metallurgical-grade alumium oxide will be 7.378 million tons, an increase of 11.5% month-on-month but a decrease of 2.3% year-on-year, and the supply side has not yet fully returned to the level of the same period last year. SMM data shows that as of March 12, the weekly operating rate of alumium oxide enterprises was 77.08%, and the weekly output was 1.631 million tons. It is worth noting that in March, more than 2 million tons of new production capacity is scheduled to be put into operation, and the progress of resumption will further exacerbate supply overcapacity. As of mid-March, the national completed production capacity has stabilized at a high of 110 million tons, with sufficient supply potential and the market's loose pattern remains unchanged.

In terms of inventory, Mysteel data shows that as of March 12, the total domestic alumina inventory stood at 5.77 million tons, an increase of 48,000 tons week-on-week and 1.856 million tons year-on-year, indicating a relatively loose supply. At present, the inventory performance of various links has diverged, and high inventory remains the core factor suppressing the market. In the follow-up, attention should be paid to the inflection point of inventory and the rhythm of capacity elimination.

In terms of costs and profits, the cost side is under pressure and rising, while the profit side is recovering marginally. Driven by the rise in raw material prices such as bauxite and energy, SMM data shows that as of March 13, the average domestic total cost of alumina was 2,668.6 RMB per ton, an increase of 45.5 RMB per month. As the increase in alumina prices was greater than the increase in costs, the average industry profit recovered from a loss of 5.6 RMB per ton to a loss of 3.39 RMB per ton, narrowing the loss margin.

Domestic electrolytic aluminum output grows moderately

In February, domestic electrolytic aluminum production showed a phasic characteristic of month-on-month output decline and high daily output. After entering March, with the full resumption of work and production in the downstream sector, aluminum processing production entered the traditional peak season of "Golden March and Silver April". According to SMM data, as of March 12, the domestic electrolytic aluminum commissioned capacity stood at 46.2087 million tons, the operating capacity reached 45.0903 million tons, and the capacity utilization rate remained high. It is estimated that the domestic electrolytic aluminum output in March will be 3.819 million tons, a month-on-month increase of 10.38% and a year-on-year increase of 6.65%. Overall, driven by the dual wheels of capacity replacement and green power transformation, the supply side of domestic electrolytic aluminum has shown a steady growth trend.

Alumina Futures Prices

Mainly volatile and strong

At present, the price of aluminium futures is caught in a game between bulls and bears. On the one hand, support from the cost side and boosts from the sentiment side form a lower defense line: the situation in the Strait of Hormuz has driven up crude oil prices and sea - freight rates, directly raising the import cost of bauxite; policy changes such as the increase in export tariffs in Guinea have strengthened expectations of a tightening supply. On the other hand, the upside potential of aluminium futures prices is constrained by the reality of domestic supply and demand—the expectation of concentrated release of new production capacity, the lower - than - expected release of downstream demand, and the high warehouse - receipt inventory together form a suppressing force. Overall, in the short term, the price of aluminium futures is expected to fluctuate with a slight upward trend, and a trending market still needs to wait for the substantial improvement of the supply - and - demand pattern.

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