Chinese alumina prices under pressure despite expected output cuts in winter: sources

China's alumina prices are under pressure after domestic primary aluminum prices witnessed a sharp decline at a time when markets remain in an oversupply situation, industry sources said Nov. 24.

Prices are not expected to gain any traction despite output restrictions are expected to widen in the winter heating season, they added.

Shanxi's Lvliang city, one of the largest alumina production hubs in China, asked local key sectors including steel, alumina and primary aluminum to carry out staggered production between Nov. 1 and March 31, 2022, as part of plans to improve air quality in the region.

The immediate market response remains fairly muted and the Lvliang development is not expected to alter the current downward trajectory of domestic alumina prices, sources in Shanxi and Gansu provinces told S&P Global Platts.

Current domestic supply is sufficient due to a lack of buying interest in the past few weeks, the sources added.

There are 10 alumina refiners in Lvliang, with six of them being asked to curb their production over the Jan. 1, 2022-March 31, 2022 period, a document released by Lvliang Aluminum Industry Association showed. Meanwhile one refiner has been ordered to stop one production line during Nov. 1-March 31, 2022.

Lvliang's alumina output totaled 9.86 million in the first 10 months of 2021, up 18% from the same period last year, according to data released by statistics bureau of Lvliang city.

Lvliang accounts for 59.3% of Shanxi's output and 15.1% of the country's total, Platts calculations showed.

Winter plans

A total of 11 cities in Shanxi, 13 in Shandong and 18 in Henan have been added to the winter air pollution control plan for 2021-2022, released by China's Ministry of Ecology and Environment in October.

Shandong and Shanxi are the two largest alumina producers of China, while Henan is the fourth largest.

Meanwhile, there were no output curbs reported from alumina refineries in northern China during the winter heating season so far, market participants said.

Aluminum price

The most-active aluminum contract for January 2022 delivery on the Shanghai Futures Exchange, or SHFE, closed at Yuan 19,250/mt ($3,017/mt) on Nov. 24, down 22% compared with the record high on Oct. 18, SHFE data showed.

China's primary aluminum prices are expected to remain volatile in the near term, as the demand remains weak, although markets may unlikely to see any increase in domestic supply in the near term, sources said.

There is a lack of buying interest from Chinese smelters for purchasing alumina now, as they expected further decline in alumina prices. The smelters have already seen their profit margins getting squeezed by declining alumina prices.