Global production of primary aluminium hit an all-time high in August, with the world’s smelters running at an annualised rate of 71.2 million metric tons. It was the second consecutive month that run-rates crossed the mark, which had only been surpassed once before, in August 2022.
China’s output was boosted by the resumption of operations in Yunnan, a hub for the high-margin “green” metal whose popularity has surged thanks to its environmental credentials. But the region is currently grappling with a drought that has forced authorities to instruct industrial energy users, including smelters, to reduce operations in order to balance the power system.
As the global economy continues to expand and develop, aluminium demand is expected to rise steadily in response. The metal is favoured by car manufacturers because of its lightweight properties, which help to lower vehicle emissions and improve fuel efficiency. The aluminium market also has the potential to grow further as electric vehicles continue to be introduced, with the lightweight material a key feature of such models.
In September, aluminium production in China slipped by 1.6% from the same period last year as two large smelters were shut down for extended periods of time. The China Hongqiao Group smelter was hit by flooding and the Xinfa pot line was closed after an explosion. Both smelters are located in the southwestern province of Yunnan, which is experiencing a severe drought.
A number of new and restarted smelters have come online in recent months. However, the capacity gains are failing to offset declines in hydro-rich Yunnan, which accounts for 12% of Chinese production. The government has been urging smelters to reduce production in the face of drought conditions, which is reducing electricity supply to Yunnan’s coal-powered plants, forcing them to ration power and limit aluminium operations.
Despite the sluggish domestic consumption, China is able to export significant volumes of unwrought metal, bolstering its aluminium industry’s reliance on foreign demand. In the first seven months of this year, the country brought in 602,000 tonnes of primary unwrought aluminium, more than double last year’s total tally.
Nevertheless, the focus has shifted to demand woes, with European recession fears amid high power prices and a strengthening US dollar denting industrial metals prices. This will likely remain a major risk to the aluminium market. Unless a resolution is found to the power supply issues in Europe and a rapid end to China’s Covid-19 restrictions, aluminium prices are unlikely to return to record highs. The International Aluminium Institute (IAI) made some significant revisions to its primary production numbers in its latest monthly update, lifting previous estimates. As of November, the industry body now expects production to reach 69.3 million metric tons in 2023, up from its previous forecast of 69.1 million metric tons. Adding to this, the IAI raised its estimate for global production in January 2023 by 0.9% from the prior-year level to 69.1 million metric tons. The IAI’s full production estimate will be published in March of next year.
