Chinese Aluminum Price Soar To 11-Year Highs As Decarbonization Efforts Slash Energy To Smelters
Chinese aluminum prices moved higher Friday, hitting an 11-year high, exchange data showed, as Beijing embarks on the road to decarbonization, a move that has reduced energy to the power-hungry smelting hub located in Inner Mongolia, even as new capacity came on online, according to Mining.com.
The benchmark price for aluminum on the Shanghai Futures Exchange stood at 18,025 yuan ($2,764) per metric ton, an 11-year high.
In terms of dollars, SHFE aluminum futures printed at 2,800 per metric ton, a critical resistance level dating back more than a decade ago.
Analysts believe the price surge in aluminum is due to Bejing’s curb on aluminum output in the Xinjiang Uyghur autonomous region to reduce carbon dioxide emissions.
According to Mining.com,
Primary aluminum output in the world’s top producer was up 8.5% year-on-year at 3.28 million tonnes in March, the National Bureau of Statistics said, beating the previous monthly high of 3.27 million tonnes reached in December 2020.
High prices are incentivizing production, with Shanghai aluminum mostly holding above 17,000 yuan a tonne in March.
Prices hit an 11-year high of 18,460 yuan on Friday.
In July, aluminum for delivery was down 0.35% on Friday morning after futures touched $2.355 a tonne on the Comex market in New York.
Meanwhile, the output of a group of 10 nonferrous metals – including copper, aluminum, lead, zinc, and nickel – rose 12.7% year-on-year in March to 5.48 million tonnes, the bureau said.
However, daily aluminum output eased in March from the previous two months, Reuters calculations based on official data showed, dropping to around 105,800 tonnes per day versus 109,300 tonnes per day for January/February, a record.
“March’s record output is due to a 500,000 tonne per year ramp-up of new capacity in the first quarter, offsetting the Inner Mongolia curbs,” CRU analyst Wan Ling told Reuters.
“Some idle capacity has restarted or is going to restart, April production should be still a bit higher compared with March,” Wan said.
“Data do indicate that China still has a considerable appetite for commodities,” Commerzbank analyst Daniel Briesemann said in a note.
Consultancy AZ China estimates 279,000 tonnes of annual aluminum capacity across seven smelters were shut due to the energy curbs, exceeding its estimate of 130,000 tonnes of new capacity launched in China last month, all in Yunnan.
China’s two-decade run as an aluminum juggernaut is running out of road. Decarbonization initiatives have reduced power to smelters as some are having trouble keeping up with demand as the country’s manufacturing sector experiences a growth spurt.
Domestic supply-chain stress are certainly developing in China as green policies start to kick in.
… and the one question we have is how will base metals react if China’s credit impulse begins to slip?
A slowdown in credit creation would have dire consequences for commodity prices that have experienced a rip roar rally for nearly a year since the pandemic began following global central banks and countries pumping trillions of dollars into the respective economies.