January 19, 2023

China’s aluminum output is expected to grow in the coming years as the industry switches more production from coal to hydropower, according to Bloomberg. This expected production growth comes despite a government-mandated capacity cap of 45 million mt/yr. According to Bloomberg estimates, production could hit 43 million mt by 2025, up from a record 40.21 million mt in 2022. The current 45 million mt/yr capacity cap was set in 2017 as part of a government effort to clamp down on emissions.

AEGIS notes that China’s aluminum production expansion comes as its producers tap Indonesia for more alumina. Two Chinese metals producers, Tsingshan Group and Nanshan Group are building alumina smelters in Indonesia that will add approximately 750,000 mt to the country’s annual production capacity. Bloomberg expects Indonesia’s alumina output will hit 4 million mt this year, up 37% from 2022. (Source: Bloomberg)

As we noted in yesterday’s First Look, China’s aluminum production expansion comes as their real estate-related demand is set to increase due to government stimulus measures. As Chinese aluminum demand increases so could global aluminum prices. Aluminum end-users that are concerned about increasing prices could consider buying swaps or call options, as either would establish a maximum aluminum price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (1/19/2023)

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