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Coronavirus is double shock for China’s giant aluminium sector | |
admin | |
2020-02-24 | |
发布年 | 2020 |
语种 | 英语 |
国家 | 国际 |
领域 | 地球科学 |
正文(英文) | ![]() Aluminium smelter, Chinalco. File image.
(The opinions expressed here are those of the author, a columnist for Reuters.) The outbreak of the deadly coronavirus could not have come at a worse time for the aluminium market. Global aluminium demand fell last year for the first time since the global financial crisis. Expectations of a demand recovery rested on China, which showed encouraging signs of a manufacturing revival towards the end of 2019. The virus and the accompanying quarantine measures have since chilled economic activity, representing a short-term demand shock for the world’s aluminium market. It’s why the London Metal Exchange (LME) aluminium price sank to a three-year low of $1,685 per tonne at the start of February. The fear is that China’s aluminium smelters will keep churning out metal even as the country’s demand implodes. Since China is the world’s largest producer of primary aluminium, accounting for 56% of global output last year, this could have huge ramifications. At the same time, China’s complex production logistics chain is undergoing massive stress and a supply shock is building upstream. ![]() Demand shockAluminium usage is highly exposed to the construction and transport sectors, meaning a double short-term hit to end-use demand. Chinese construction activity is being hampered by quarantine restrictions on workers returning from Lunar New Year holidays. Already weak automotive sales look set to collapse over the coming months. Passenger car sales slumped by 92% in the first half of February, according to the China Passenger Car Association. The more immediate concern is China’s aluminium processing sector, which converts metal into semi-manufactured products. Most fabricators tend to close their plants or at least run at reduced rates over the holidays. Many are yet to restart, being in locked-down quarantine zones. This processing chain disruption is causing a sharp build in aluminium stocks registered with the Shanghai Futures Exchange (ShFE). ShFE inventory has surged by 224,508 tonnes to 409,635 tonnes since the start of January. Increases over the new year holidays are the norm in China but the seasonal January-February build was a mild 75,000 tonnes last year and 88,000 tonnes in 2018. Arrivals have been concentrated at exchange depots in Jiangsu and Henan provinces, with registered tonnage in Shanghai at a multi-year low of 10,218 tonnes. That suggests a high level of regional divergence resulting from dislocated physical supply chains. But the broader build in visible stocks is a warning sign that first-stage demand from the processing sector is failing to experience the “normal” post-holiday pick-up. China’s smelters, meanwhile, don’t take holiday breaks. A smelter is not easily switched on and off and doing so costs money. Chinese production slid by 2% last year but picked up strongly at the start of 2020. National output in January surged by an annualised 425,000 tonnes relative to December and at 36.3 million tonnes represented the fastest run-rate since December 2018, according to the International Aluminium Institute. The disconnect with weak demand is likely to become ever more severe this month, raising the prospect of a massive inventory build. This is a recurring nightmare for the aluminium market, which has spent much of the last decade working off the stocks accumulated during the global financial crisis of 2007/08. Then too demand collapsed but smelters carried on producing fresh metal. ![]() Supply shockHowever, China’s giant smelter sector is itself dependent on both domestic and international raw material supply chains. The country’s build-out of smelter capacity has made it ever hungrier for imports of bauxite from countries as far afield as Guinea and Ghana. Imports of bauxite, which is converted to alumina to make aluminium, reached 101 million tonnes last year, a record high. That flow of material is now also disrupted. Port stocks of bauxite have risen by around 5 million tonnes since the start of the year even while alumina refineries in Henan and Shanxi provinces are drawing down stocks to ultra-low levels, according to research house Wood Mackenzie. (“How is the coronavirus affecting China’s aluminium market?” Feb. 14, 2020) Some alumina refineries are also running short of other key inputs such as caustic soda, while others can’t ship their product to smelters, particularly distant plants in northwest provinces such as Xinjiang, according to Woodmac. It estimates that “in the span of 12 days refining cuts in China have reached 5.2 million tonnes (annualised), representing 7% of the country’s estimated production.” The domestic alumina market is forecast to experience a 1.1 million-tonne deficit in the first quarter. This may well lead to smelter cuts, according to analysts at Goldman Sachs, although they expect the country’s production growth to slow not halt over the coming period. (“The impact of 2019-nCoV on industrial metals,” Feb. 14, 2020) Supply chain shockGoldman is sticking with its already bearish price forecasts of $1,700, $1,650 and $1,675 over a three, six and 12-month time horizon. The bank’s views chime with a broad consensus that the likely aluminium demand shock is going to be more immediate and more severe than any ensuing supply shock. That’s preventing the LME price staging any significant bounce from the early-February low. On Friday it was trading just above there at $1,705. However, China’s physical aluminium processing chain itself has been shaken, which may translate into different outcomes at different stages of the value chain. The disruption to China’s alumina sector, for example, might well stimulate higher demand for imported alumina, “as this can be railed from the port whereas intra-province truck delivery is severely constrained,” notes Woodmac. The research house estimates China imported 400,000 tonnes of alumina in January and “is on track to import similar or higher tonnages in February.” China’s exports of semi-manufactured products, meanwhile, might well fall sharply over the coming months due to the constraints on many fabricators. Exports last year were around 5.2 million tonnes, down slightly on 2018 levels as Chinese companies faced increased trade hostility in the form of tariffs. A drop in outbound product flows might even be greeted with relief by the rest of the world’s aluminium industry. But that shouldn’t mask the scale of the potential short-term disruption to the global market. The demand shock is already unfolding. A supply shock may yet follow. (By Andy Home) |
URL | 查看原文 |
来源平台 | Minging.com |
文献类型 | 新闻 |
条目标识符 | http://119.78.100.173/C666/handle/2XK7JSWQ/228625 |
专题 | 地球科学 |
推荐引用方式 GB/T 7714 | admin. Coronavirus is double shock for China’s giant aluminium sector. 2020. |
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