context: US sanctions on Russia and the world's second largest aluminium producer, Rusal, triggered high market expectations for Chinese products to fill the gap in supply, driving up aluminium prices since 6 April 2018. However, the US has extended the time for Rusal to comply with sanctions as of 23 April, meaning the temporary price rise for domestic aluminium will likely evaporate, mainly as a result of persistent high stockpiles and industry overcapacity.
Overall aluminium output might see slower increase or even decline thanks to supply-side structural reform. However, the industry will be facing strong overcapacity pressure and price decline in H1 2018, argues Yao Xizhi 姚希之 Antaike research director. This is caused by
- potential increase in capacity: over 3.5 million tonnes of capacity were eliminated in 2017, with 1.5 million tonnes of new capacity starting operation. Around 2.7 million tonnes of capacity may start operation in 2018
- restart of after heating season production restrictions: around 0.9 million tonnes of capacity is operational again after restrictions expired
- sluggish demand: slowdown in economic growth likely to continue
Aluminium has seen overall price decline since October 2017 and around 40 percent of capacity operates at a loss, which will slow down the release of new capacity. Aluminium price is likely to rebound in H2 2018 after H1 adjustment though, adds Yao. Leading aluminium SOE Chalco released its Q1 report on 23 April, announcing its net profit reached C¥309 million, a 19.4 percent y-o-y decline, says The Paper. The group attributed this to declining aluminium prices and loose implementation of winter heating season production controls.