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China's Sep primary aluminum output posts first on-year decline since June 2020

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China's Sep primary aluminum output posts first on-year decline since June 2020

China's primary aluminum output in September witnessed its first year-on-year fall since June 2020, due to widening output curbs following a power shortage and amid efforts to reach energy consumption targets.

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China's September output hit 3.08 million mt, down 2.1% on the year and 2.5% on the month, according to latest data released by National Bureau of Statistics, or NBS, on Oct. 18. The output registered the fifth straight monthly fall, the NBS data showed.

China's primary aluminum output is likely to keep decline in October amid growing power rationing measures, market sources said.

The idled capacities are unlikely to be restored before the end of this year and there could be more restrictions on production in the coming winter, which will lend support to domestic aluminum prices. However, the continued accumulation in domestic stocks will cap the surge in prices, as downstream processors are struggling with the current high prices, said sources.

Output cuts

Till the end of September, smelters in Inner Mongolia Autonomous Region, Changji Hui Autonomous Prefecture of Xinjiang Uygur Autonomous Region, Guangxi Zhuang Autonomous Region, Qinghai, Guizhou, Yunnan, Shanxi and Shaanxi province were successively ordered to curb their production due following power rationing measures aimed to get industries to meet energy consumption targets towards the end of the year.

Meanwhile, the smelters in Henan province that suffered due to floods in July have yet to resume the idled capacity. There were market talks that Zhengzhou city -- the capital of Henan -- started power rationing for the winter since Oct. 15 with 64 companies listed as high polluted and high energy consuming projects being asked to stop production.

China has reduced primary aluminum production capacity by a total of 2.74 million mt/year in the first nine months of this year, the data released by the state-owned research company Antaike showed.

China's primary aluminum output will total 39.1 million mt in 2021, up 4.8% from a year earlier.

Aluminum price

The most active aluminum contract for November delivery on Shanghai Futures Exchange, or SHFE, rallied for seven consecutive days and hit an all-time high at Yuan 24,770/mt ($3,850/mt) Oct. 18, up 1.6% from the previous close.

Primary smelters outside of China started to cut their production, in view of rising costs driven by the increase in energy prices, which may support domestic aluminum prices.

However, the recent surge in domestic aluminum prices will further undermine the demand from downstream processors, which may cap the rise to some extent. Some sources expected domestic stocks to continue to pile up as the demand from downstream users will be weakened by high prices and power limits.