Price fall of aluminum continues
by David Fleschen
Caixin's Purchasing Managers' Index for manufacturing (PMI) for March has largely confirmed the official PMI and has also returned to the expansionary area. This was apparently anticipated by yesterday's metal prices, which rose 2.3% as measured by the LME industrial metals index. However, they are falling again this morning after weak sentiment indicators and economic data from other Asian countries have been published. Aluminum fell against the trend yesterday. This morning, the price on the LME has dropped below the $ 1,500 a ton mark to a new 4-year low. At SHFE, the price of around 11,500 CNY per ton is only marginally above the 4-year low recorded last week. The fall in aluminum prices is putting more and more producers under pressure, especially in China. The price is already well below the break-even point of the Chinese aluminum manufacturers, which is set at an average of 14,000 CNY. According to the research institute Wood Mackenzie, at prices below 12,000 CNY, almost 70% of Chinese producers are "under water".
It does not help much that the drop in oil prices reduces production costs. Energy accounts for around 40% of the total manufacturing cost of aluminum. On the other hand, the costs for alumina, the primary product of aluminum, increase because the mining and transport of bauxite is restricted due to the restrictions to combat the corona virus. At the same time, aluminum demand is very subdued. The producers in China are now reacting to this situation and throttling their production. According to industry circles, they are apparently trying to do this primarily through maintenance work. Complete capacity closings should therefore be avoided, since it is expensive to shutdown and then restart. Therefore, up to a point, operational losses would be temporarily accepted. According to market observers, China has now cut aluminum production by around 350 thousand tons p.a.
Source: Commerzbank Research, Photo: Fotolia