SunSirs: Alumina Continues to Fall, Anticipating a Rebound

In the fourth quarter of this year, base metals have seen successive price increases, drawing significant attention. However, alumina not only failed to follow suit but has continued to decline, even falling below its all-time low since listing. The market wonders why it remains so “unconventional.” The answer lies in the following three reasons:

1. Commodity Attributes: Alumina is fundamentally not a base metal but an intermediate product in non-ferrous smelting.

Supply-side differences: Alumina production has low start-up/shutdown costs and flexible capacity adjustments, enabling rapid output changes based on profitability with high supply elasticity. Nonferrous metals, however, face high start-up/shutdown costs and inflexible production.

Demand-side differences: 95% of alumina is used in primary aluminum production. China's primary aluminum capacity is constrained by a “ceiling,” leaving extremely limited growth potential and resulting in long-term stable alumina demand. Nonferrous metals, however, serve end-use sectors like machinery, manufacturing, and industry, tracking macroeconomic cyclical fluctuations.

This creates divergent pricing anchors. While nonferrous metals exhibited a split pattern this year—strong futures but weak spot prices—alumina futures and spot prices largely moved in tandem. The root cause lies in alumina's alignment with basic chemical logic, where spot pricing anchors to marginal costs and spot-market equilibrium rather than futures prices. Therefore, when spot supply remains ample, futures lack sustained upward momentum. This dynamic also means that counter-cyclical movements in the chemical sector can drive short-term aluminum oxide gains—never underestimate macro capital flows.

Aluminum oxide's plunge to record lows reflects inevitable cost collapse and industry dynamics

2. Cost Side: Collapsing ore prices significantly erode cost support

This year, Guinea's bauxite supply surplus has driven its CIF average price from a record high of $114/ton at year-start to the current $68.5/ton. Recent long-term contract prices from major mines have even dropped to $66.5/ton. This means that during spot oversupply, the prices anchored to producers' marginal costs keep falling. The industry now requires even lower price levels to trigger production cuts.

3. Supply Chain Dynamics: Primary Aluminum Producers and Traders Jointly Exacerbate Alumina Oversupply

Q4 industry dynamics reached a stalemate: primary aluminum producers delayed signing long-term raw material contracts. Alumina plants, bolstered by accumulated profits from the first three quarters, either resisted “leaving the table,” faced pressure to meet annual production targets, or were unable to cut output. These factors collectively delayed large-scale industry reductions until next year, creating unprecedented surplus pressure in Q4.

In October, traders' stockpiling briefly disrupted market dynamics, causing spot transaction prices to rebound and slowing the pace of spot declines. However, this did not alter the downward trend.

Next year is still expected to see another new low since listing, primarily due to two factors: ① Continued cost decline. The price floor in an oversupplied market is determined by marginal costs. As analyzed later in this report, Guinea's bauxite supply is projected to remain ample in 2026, with falling ore prices pulling down alumina costs and spot prices further. ② Absence of profit-sharing mechanisms across the supply chain. Even with current primary aluminum profits at a historic high of 5,500 yuan/ton, smelters have not accepted higher alumina prices. This indicates that all segments of the aluminum industry operate under profit-maximization principles, with no established practice of transferring profits upstream or downstream. This applies even to integrated companies, where primary aluminum and alumina plants maintain independent accounting.

What will drive market rebounds next year? Beyond traditional factors like Guinean disruptions, domestic production cuts, or anti-cannibalization sentiment, marginal changes in pricing mechanisms will also play a role.

Spot market liquidity is expected to rise significantly next year, making prices more sensitive to fluctuations. We anticipate that long-term contracts for primary aluminum plants will not only be delayed but also see reduced volumes. Since alumina long-term contract prices are determined by spot transaction prices, this implies that spot transactions—previously accounting for only 10% of the volume determining long-term contract prices—may rise to 20-25% next year. Increased spot transaction volume will make prices more susceptible to marginal changes in spot liquidity, directly amplifying the magnitude and frequency of adjustments in the “three-network pricing” system.

Alumina producers' inventory control capabilities are expected to strengthen. As more aluminum plants bypass traders to engage in B2B transactions with alumina producers, coupled with the expansion of the spot market, alumina producers—who typically hold weaker bargaining positions—may gain greater control over inventory during periods of tight spot liquidity compared to this year. A prime example occurred from mid-October to late November this year: Despite accumulated total inventories, smooth inventory digestion at alumina plants—driven by producer and trader supply controls—led to spot delivery prices rising rather than falling. Futures prices remained unusually resilient near 2,800 yuan/ton. Looking ahead to next year, should spot supply tighten again, the window for counter-trend price rebounds triggered by anti-cannibalization efforts may persist longer than this year, with more complex market dynamics.

China's dependence on and sensitivity to Guinea's alumina supply will continue to rise.

On March 11, 2025, the Ministry of Industry and Information Technology (MIIT) and nine other departments jointly issued the Implementation Plan for High-Quality Development of the Aluminum Industry (2025–2027). The plan explicitly states: “No new or expanded alumina production lines using gibbsite as raw material shall be constructed.” Given that nearly all domestically sourced bauxite in China consists of gibbsite, this policy means future new alumina production capacity in China will rely solely on imported ore for raw material supply.

Guinean ore has been steadily increasing its share of China's imported ore, while other potential alternative sources—such as Indonesia and Malaysia—face constraints like policy restrictions and ore grade limitations that make them difficult to rely on in the short term. Consequently, China's alumina industry will become increasingly sensitive to Guinean ore supply and to policy and political shifts within the country.

Compounded by Guinea's strategic core status in its own mining sector, we conclude that until China identifies stable import alternatives, political shifts in Guinea have become a critical variable affecting bauxite supply and pricing. Discussing ore prices without considering Guinea's political landscape is tantamount to talking in abstract terms. Consequently, this annual report introduces a new section analyzing Guinea's political and economic landscape.

Domestic Alumina: North-South Price Gap Poised for Reversal

North-South price disparity expected to reverse next year; new capacity additions reflect underlying pessimism

Prior to and throughout the first half of 2023, the north-south price gap (Guangxi-Shandong) remained largely subdued. Starting in the second half of 2023, as electrolytic aluminum capacity shifted southward, alumina prices in the two major southern production areas of Guangxi and Guizhou consistently exceeded those in the three northern main production areas of Shandong, Shanxi, and Henan, reaching a historic peak in Q1 this year. With the expected commissioning of 8 million tons of new capacity in Guangxi next year, we anticipate accelerated declines in Guangxi alumina prices, leading to a narrowing of the north-south price gap.

This year, alumina producers' commissioning decisions have consistently been driven by pessimistic price expectations for the future, and this trend will persist next year. This implies that if alumina production cuts lead to a rebound early next year as anticipated, producers are highly likely to repeat the early commissioning seen in Q1 this year. Reviewing this year's commissioning pace:

January-February: Producers rushed to commission ahead of schedule to capture the high-price window, driving actual new capacity additions of 10.8 million tons in the first half—a significant upward revision of 4.7 million tons from initial year-start projections.

From mid-to-late March through late May, the industry entered a concentrated maintenance and production cut period, rapidly shifting the market from surplus to tightness. Spot transaction prices drove across-the-board increases in all three network quotations. At this stage, some producers still maintained expectations of commissioning before year-end.

After August, the market turned to ease, with prices falling steadily. Some projects explicitly postponed commissioning to 2026.

We project alumina production to reach approximately 89.5 million tons in 2025, representing a 6.9% year-on-year increase. By 2026, output is expected to surpass 93 million tons, though growth will decelerate to 3.3% (factoring in two rounds of large-scale production cuts). Spot prices are anticipated to range primarily between 2,500-3,100 yuan/ton.

Balance sheet projections indicate that any attempt by producers to drive an alumina price rebound next year would require unprecedented production cuts.

Caution is warranted, as a price rebound could trigger early production resumption and a rapid wave of restarting plants, thereby limiting the rebound's upside. The fundamental cause lies in the industry's ongoing fragmentation—as concentration declines, the scope for producers to coordinate production cuts and lift prices will narrow significantly.

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