According to the International Aluminum Association (IAI), global aluminum production fell by 1.2% to 33.12 million tons in the first seven months of this year. This does not seem to be much. In terms of production, only a reduction of 390,000 tons is only a drop in global aluminum production.
But this is the first time since 2009 that production has continued to decline since the beginning of the year. In 2009, the financial crisis quickly turned into a manufacturing crisis, and aluminum producers mourned. It is also worth noting that the trends in China, a major producer, and the rest of the world are quite different.

During the period 2012-2014, the latter’s output shrank due to plant closures and production cuts, but since the beginning of last year, the output has gradually increased and has increased by 1.3% so far this year.

On the other hand, China, which has always been the main force in output increase, has greatly increased its share of global output from less than 30% in early 2009 to approximately 54%.
But not this year. In the first seven months of this year, six months of production declined compared with the same period of the previous year, and the cumulative production fell by 3.1%.
This is an unexpected result, but it explains to a certain extent that aluminum prices are also unexpectedly strong in 2016. Last week, the three-month aluminum on the London Metal Exchange (LME) rose more than US$1,700 per ton for the first time in a year. The current trading price is only slightly below this level, at US$1,680 per ton.

The price performance in the Shanghai market is equally good, sometimes even better, because the problem with its delivery operation is not too much metal waiting to be shipped, but too little inventory entering the warehouse.

All of these are far from the gloomy conditions in the market at the beginning of 2016.

But is this a sustainable change, or is it just another mirror image?

Everything depends on the next development of China’s huge smelting industry.

Other markets around the world-similar and small differences It can be expected that production in other parts of the world will continue to rise moderately.

The last round of production decline is now over; the last round of production decline is mainly caused by the decline in US production capacity, and the main reason is the decline in Alcoa’s production capacity.

North American production dropped to a trough of 3.87 million tons per year in March, and then stabilized at around 3.95 million tons.
The latest expansion of the Canadian refinery Kitimat offset the overall decline in output. Kitimat’s rated output in the second quarter of this year was 420,000 tons.
Russian production has also risen again. Rusal, the shareholder of the Boguchansk smelter, said the plant is in “trial operation”; this is a new smelter with an annual capacity of 600,000 tons. The smelter produced 38,000 tons in the second quarter. Based on this calculation, the annual output is 150,000 tons, which means there is still great potential for growth.
But the real driving force for the increase in output outside of China is Asia. In the first seven months of 2016, Asian output surged by nearly 15%.
Four new smelters were put into operation in India last year. Hindalco’s Mahan smelter with a design capacity of 360,000 tons has reached full capacity at the end of 2015, and the Aditya smelter has also reached full capacity in the second quarter of this year.

Vedanta Resources’ two new smelters are still in the stage of increasing production. The first production line of its Jharsuguda smelter is currently operating at full capacity, and the second production line was put into operation last month. Its Korba II smelter started trial production in April this year.
Although this new capacity is online, due to the high price, the old, high-cost smelter does not need to further reduce production. In the short term, the current modest increase in output will continue until the end of this year.

China unexpectedly This makes China a key determinant of short-term global production trends.

China’s aluminum output has decreased so far this year, bringing some pleasant surprises to the market. The market had long been dissatisfied with the Chinese authorities’ accustomed to subsidizing loss-making aluminum smelters, and at the same time encouraged the export of surplus aluminum in the form of semi-manufactured products.
But perhaps it is also in hindsight. In November, the Shanghai spot price fell to less than 10,000 yuan per ton, which caused a clear supply response.
China’s production fell sharply in December, January and February, and only slightly recovered from March to June.
However, the output fell again in July, and the annual output decreased by 1.37 million tons. However, the monthly fluctuation of the output data provided by the China Nonferrous Metals Industry Association to the International Aluminum Association may only appear in statistics, rather than reflecting the actual status of refined aluminum. .
However, the overall slowdown in output this year is in line with the mild reduction in China’s aluminum exports.
From January to July, exports of semi-manufactured aluminum products fell by nearly 7% to 2.37 million tons.

China still has a surplus of supply for exports, but the extent to which the surplus has shrunk, it seems that the global supply shortage is no longer imagined.
How long does last?
How long can this favorable production trend be maintained?
Unfortunately, it won’t be long. This seems to be the consensus of all walks of life.

Past records show that Chinese refineries are very price sensitive. In addition, after the aluminum price fell below the production cost at the end of last year, the outside world worried that the current Shanghai aluminum price of more than RMB 12,500 per ton would encourage the restart of the refinery or the start-up was delayed. Refinery expansion.
Consulting agency AZChina predicts that by opening new plants and restarting old plants this year, production capacity will be increased by about 3 million tons.

But the agency estimates that only one-third of this part of the production capacity was realized in the first half of this year, which means that more production capacity will be put into production in the second half of this year, and more new production capacity is expected in early 2017.
This is an urgent threat to the small increase in aluminum prices this year, and reminds the world that China is not only the world’s largest aluminum producer, but also a country with a serious surplus of energy refining.

The second point may be the increase in China’s aluminum semi-finished products inventory, partly because of increased political sensitivity to aluminum exports, and partly because arbitrage is basically negative.

Obviously, production will accelerate again in the next few months, which may have a huge direct impact on the export of semi-finished products.
The signal to other aluminum producing countries in the world is: When aluminum prices maintain their upward trend, enjoy it. As long as a few refineries that have postponed expansion in China begin to increase output, China and global production will return to the path of expansion.