Singapore—China's aluminum prices will rise steadily and domestic smelters will continue to enjoy healthy profit margins in the first half of 2021 thanks to production curbs and destocking driven by economic recovery and strong demand, Henan Shenhuo Group's chairman Li Wei said on the sidelines of the National People's Congress and the Chinese People's Political Consultative Conference, otherwise known as the two sessions.
On the supply side, the ceiling for China's primary aluminum capacity has been set at about 45 million mt/year under the supply side reform, while power supply and environmental protection measures will impact the progress of new capacities.Meanwhile, aluminum consumption will keep rising globally as the world economy is recovering from the impact of the coronavirus. This will benefit domestic aluminum prices in the long term, according to state-owned China Nonferrous Metals News, citing Li.
Market sources are optimistic of the outlook for China's primary aluminum prices and profit margins in the medium to long term on the back of expectations that carbon-neutrality will curb the increase in production and benefit downstream demand like new energy vehicles and photovoltaic sectors.
Chinese smelters will continue to enjoy high profit margins in view of the fact that alumina prices will be dampened by worldwide oversupply, while primary aluminum prices will remain at high levels, Li said. Shenhuo Group expects to have realized a net profit of Yuan 300 million ($46 million) in 2020 thanks to the rise in primary aluminum prices as well as lower alumina and anode carbon costs.
China's primary aluminum industry is finding it difficult to meet lower energy consumption targets as production consumes a large amount of thermal power. Chinese smelters will prefer to utilize hydropower once carbon emission quotas start to be traded in the market, as smelters' production cost when using thermal power will directly increase.
Shenhuo plans to commission another 150,000 mt/year capacity at its Yunnan Shenhuo project, which consumes hydropower, in June. After which, the company's overall production capacity will stand at 1.7 million mt/year, with 0.8 million mt/year located in the Xinjiang Uygur Autonomous Region and 0.9 million mt/year in Yunnan.
