China’s aluminium supply shortage keeps prices near 13-year high with little sign of easing amid power cuts, emission targets

·4-min read

Global transport, packaging and construction sectors will have to brace for more shortages in aluminium as China’s power-intensive metals industry buckles under the pressure of a national power crisis while Beijing maintains a cap on smelting to meet emissions targets.

Alongside curtailed magnesium output – another power-intensive metal – aluminium production in China has suffered a 2.3 million tonne drop since the onset of the power crunch in September, when widespread power rationing swept the country amid a race to cut down on carbon emissions and reduce power generation.

The price soared to a 13-year high of US$3,000 a tonne in October, the highest mark since 2008. Before reaching that milestone, aluminium was generally priced in the range of US$1,500 to US$2,000 a tonne. It cooled to about US$2,700 a tonne on Friday.

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The hit to the world’s biggest aluminium supplier’s output was not an overnight phenomenon and has been sliding since China’s power woes began to rear their head late last year. While China is no stranger to blackouts during peak power-usage seasons, power consumption last winter exceeded that of the summer months for the first time in about 10 years. More than a dozen cities across various provinces set caps on electricity usage for factories.

Megawatt hours to produce 1 tonne

Steel

4-6

Magnesium

35-40

Aluminium

16-17

Those blackouts continued periodically through the year, until September when power rationing measures were imposed in more than half of China’s provinces.

And analysts expect aluminium production to continue to soften for months to come, not only because of sustained power shortages, but because the Chinese government has held firm on curbing aluminium smelting.

The State Council’s action plan to peak carbon emissions by 2030 was released on Tuesday, and analysts said it signalled more cutbacks to come.

“According to the newly released document, China’s government calls for more efforts to achieve the goal of peak carbon emissions for major industries, including non-ferrous metals, steel and petrochemicals,” ING Economics’ commodities strategists Warren Patterson and Wenyu Yao said in a note on Tuesday. “It continued to highlight the resolution to cap aluminium capacity. It called for strictly enforcing capacity swaps in primary aluminium smelting, and for more recycling.

“Despite the ongoing power crunch leading to curtailments on more than 2 million tonnes of [aluminium] capacity, the long-term goal in carbon emissions should maintain a cap on primary supply growth.

“This leads to a high conviction that China’s primary aluminium supply growth will peak before 2025, which is also the year China’s industry association proposed that the aluminium industry will achieve peak carbon emissions.”

Aluminium smelting in many Chinese regions – including Inner Mongolia, Guizhou, Henan, Qinghai, Guangxi, Yunnan and Ningxia – has been hit by power and production cuts this year, even before the recent power crisis.

Those cuts were first seen late last year, but when Inner Mongolia cancelled preferential power prices in February, widespread factory shutdowns swept through cities, noted Mok Yuen Cheng, senior managing editor for non-ferrous metals at commodities analyst S&P Global Platts.

In May, Yunnan smelters were twice asked to cut power and output – first by 10 per cent, then by 40 per cent. In June, a Guizhou smelter had to cut output because it did not meet emission standards. And in August, Guangxi, Ningxia, Qinghai and Xinjiang were all asked to cut power, Mok added.

In September, Shaanxi’s Yulin city – also a magnesium producer – cut power by 50 per cent.

We think [the aluminium shortage] has just begun. It’s kept our head on a swivel this entire time.

Mike Keown, Commonwealth Rolled Products

“With winter coming soon, more energy will be consumed, and China’s power shortage is expected to continue through the first quarter of 2022 at least,” Mok said.

Globally, those who depend on a steady aluminium supply have been deeply concerned.

Also in September, traders at the world’s largest aluminium conference, Harbor’s 13th Aluminium Summit, said they were bracing for snarled supplies of the metal throughout most of 2022, with some projecting the shortage could last five years, according to Bloomberg.

Shortages of raw materials such as aluminium will compound the supply-chain problems already being faced by domestic manufacturers.

“For us, it’s been a mess,” Mike Keown, CEO of Commonwealth Rolled Products, said at the summit, according to Bloomberg. “And as we look ahead to 2022, we don’t see this going away any time soon, unfortunately.

“We think it’s just begun. It’s kept our head on a swivel this entire time.”

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