Looking at alumina supply from overseas manufacturers

Report summary:

Since March, the operation of aluminum overseas manufacturers has repeatedly become the focus of the market. The normal operation of Hydro, Rusal and Alcoa was interrupted, causing different price shocks to the market. Since August, in the case of Hydro’s production cuts and RUSAL sanctions continued, and Alcoa’s sudden strike, alumina prices soared and continued to maintain net exports. However, the high production profit stimulation of overseas manufacturers and the new capacity in the long-term can not be underestimated. Domestic manufacturers have disadvantages such as cost and policy. The net export of alumina is difficult to maintain for a long time, and the cost hype caused by alumina is also Unsustainable, for Shanghai Aluminum, the cost is more back to the bottom support.

Since March, the alumina export window has continued to open. According to customs data, from January to July 2018, alumina exports totaled 346,600 tons, an increase of 1034.4% over the previous year. In the case of relatively tight domestic supply, exports are still sustainable, indicating that the shortage of alumina in the international market is even worse. There are even some opinions in the market that China may become a net exporter of alumina in the long run. Can the net export of alumina be maintained? Is the shortage of alumina in the international market continuing? Based on the international supply side of alumina, this paper will make a reasonable prediction of the future supply of alumina in the world by analyzing the operation of major international aluminum giants.

1. The production of the overseas Big Three is limited, and the supply of alumina in the international market is tight.

In the past two months, in the case of a shortage of domestic ore supply and high bauxite prices, the cost has pushed the price of domestic alumina to remain high. At the same time, overseas alumina prices have continued to rise, and the average price of port alumina FOB is 8 The monthly climb climbed to 640 US dollars, and the widening of the internal and external spreads has also become an important factor in stimulating the upward movement of alumina. The shortage of alumina in the early stage of the overseas market is inseparable from the production dynamics of major international alumina producers:

First, Hydro’s production cuts are still going on. Since February, Hydro’s alumina plant in Argentina, Alunorte, was ordered by the Brazilian government to cut production by 50% due to environmental problems. Hydro and the Brazilian government have been in the process of negotiating tug-of-war. According to Hydro’s second quarter report, the recovery time of the capacity has not yet been determined. From the quarterly report released by Hydro, it was observed that its alumina output in the first quarter was 1.277 million tons, down 12% from the previous year; the second quarter was 829,000 tons, down 35% from the first quarter and 47% from last year. As Alunorte produces all of Hydro’s own alumina, the nearby Paragominas bauxite and Albras electrolytic aluminum plants are also produced at 50% capacity due to reduced production at the plant. It is still uncertain whether Hydro will be able to resume full production in October. According to the 2017 production, as of now, Hydro’s production reduction has caused at least a reduction in the production of 1.53 million tons of alumina in the international market, even if it is fully restored by the end of October. This will result in a reduction in the actual supply of approximately 550,000 tons. On September 5, Hydro’s Alunorte alumina plant signed two agreements with the Brazilian government, including the Code of Conduct (TAC) and the Social Obligation (TC). Although it is still not confirmed, Hydra regards this. The two articles are important milestones in advancing the negotiations.

Second, the prospect of Alcoa strikes is unclear. On August 8th, Alcoa’s three alumina plants in Western Australia and two bauxite mines went on strike. Alcoa urgently mobilized temporary workers to take over production. Although short-term does not affect the output of alumina and bauxite, but the union Negotiations with Alcoa have not been agreed and are still in the negotiation stage. Alcoa’s Western Australian industry has a strong global position. In 2017, the three alumina plants in the area have a total capacity of 8.98 million tons, accounting for 54% of Alcoa’s alumina production capacity; two bauxite productions of 33.20 million tons, accounting for 74%. % bauxite production capacity. Shipments that have been shipped out of Australia have been affected, making the supply in overseas markets even worse. On September 7, Alcoa’s alumina plant in Western Australia and local unions voted on the new employment agreement. The vote did not reach a consensus. Local unions said workers would continue the strike since August 8.

Third, the Russian aluminum sanctions are pending. Since the U.S. Treasury Department announced sanctions against RUSAL on April 6, it has not yet been fully resolved. In October, the U.S. will make a final ruling. In terms of 2017 production, Rusal has contributed more than 6% of alumina to the global market, and more than 70% of its production capacity is outside Russia. If the sanctions cannot be resolved, the trade of overseas alumina is bound to be affected. Aluminum has a difficult road to sales, resulting in a shortage of overseas markets. On the evening of September 12, the market suddenly reported that Rusal was sanctioned or dismissed by the United States, and the price of Lun aluminum quickly retraced, but the Russian aluminum official did not comment on this.

From the latest developments of Rusal, Hydro and Alcoa, Hydro and RUSAL have released positive signals to resume normal operations, while Alcoa News is relatively negative. Will Alcoa’s strike continue for a long time, thus affecting the supply of overseas alumina in the medium and long term? We analyze in detail the production profit and capacity operation of overseas manufacturers.

2. The profit margin of overseas alumina production is considerable

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Although Alcoa’s strike is continuing, we believe that in the context of the current high-yield production of overseas alumina, Alcoa has a positive attitude toward strikes, or made large concessions, and the possibility of a long-term strike is small.

Different from the tight supply of bauxite caused by domestic environmental protection policies, the supply of overseas bauxite is very sufficient, and mature manufacturers have a complete industrial chain from bauxite to electrolytic aluminum, ensuring that alumina can be stably and stably sold at a low price for a long time. Production of electrolytic aluminum. From the cost observations announced by the overseas first-tier alumina producers, South 32 has the lowest production cost. The average production cost in 2017 is about US$200/ton, and the average annual cost of Rusal in 2017 is about US$270. After 2018, the cost will be The innovation is low, and it has fallen to around $230 in the first half of the year. Alcoa and Hydro also announced the cost and price. In the first half of the year, as the alumina price went up, Alcoa alumina’s profit margin has approached 40%. After Hydro’s production cuts, the production cost has risen rapidly, resulting in a lower profit margin. The half-year profit margin remained at around 15%. Other big manufacturers have not clearly stated the cost of alumina production, but Rio Tinto and Vedanta have repeatedly mentioned that they have low cost advantages, and production costs are distributed among the top quartiles of world manufacturers.

Can the strike or shutdown be maintained for a long time under the high profit of alumina? Starting from the maximization of the interests of the manufacturers themselves, it is a reasonable choice for a “rational person” to take measures to resume normal operations as soon as possible. In fact, from the two contracts signed between Hydro and the Brazilian government, we can glimpse the company’s eager hope for a return to production. From the two agreements between Hydro and the Brazilian government, all investment, cost and fines in the TAC are estimated to be 160 million Yarel ($38.43 million), in addition to 250 million Yarel (600,500). The financial reserve for the US dollar; in the Social Obligations (TC), Hydro has committed to invest 150 million Yarel ($36.03 million) for urban infrastructure projects. In both agreements, Hydro has decided to pay at least $130 million. Come to work for the resumption of production.

Hydro is willing to pay a huge sum of money to resume production, naturally because the resumption of production can bring higher returns. Compared with Hydro, Alcoa’s alumina profit is even more impressive. In the second quarter of 2018, alumina sales profit has approached 40%. In terms of volume, Alcoa is the largest alumina producer in the world. In 2017, the annual output of alumina is 13.7 million tons. The ratio of alumina to electrolytic aluminum is as high as 4:1, which means that in addition to its own use, Alcoa annually There are still nearly 7 million tons of alumina exported. Australia’s three alumina plants account for 54% of Alcoa’s total alumina production capacity and are prominent in Alcoa’s aluminum industry chain. Under the double pressure of high profits and high output, we believe that even if the results of the first trade union negotiations are not satisfactory, Alcoa still has the motive to make greater concessions, and the strike in Western Australia may not be long-term.

3. Long-term supply pressure still exists

Under the stimulation of high profits, does the manufacturer have the possibility of expanding production? We reviewed the latest annual or quarterly reports of major international manufacturers, and sorted out the projects with clear new capacity in the aluminum industry chain. We found that although there is no need to worry too much during the year, supply pressure still exists in the long run.

In 2013, aluminum prices continued to slump for two years, and some international manufacturers have stopped production or sold assets in order to cope with losses. Beginning in 2015, with the start of China’s supply-side reforms, aluminum prices began to rise, and manufacturers began to resume production and construction of different sizes. From the published report, the world’s nine major manufacturers disclosed a total of 10.85 million tons of new alumina production and production capacity, and electrolytic aluminum production capacity of 3.85 million tons. From the construction cycle and production time, most of the new production capacity exists in the long-term cycle, and the absolute increment is small during the year. However, compared with the policy environment at home and abroad, the growth of long-term overseas production is not expected to be underestimated.

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The world’s bauxite reserves are abundant, and overseas manufacturers do not have the trouble of environmental protection and rectification. From the perspective of the entire electrolytic aluminum industry chain, there is no shortage of raw materials. In addition, the supply-side reform only determines the ceiling of China’s electrolytic aluminum production capacity. The increase in production by overseas manufacturers is not limited, so there is no upper limit for electrolytic aluminum production capacity. More importantly, with the reduction of China’s supply, global aluminum prices have been raised, and the overseas aluminum producers’ industrial chain profit margins are generally higher, and manufacturers have sufficient incentives to expand production to obtain higher returns. With power and unlimited, the supply of long-term overseas alumina and electrolytic aluminum can not be underestimated. Compared with overseas giants, domestic manufacturers have many disadvantages such as cost and policy. China does not have the necessary conditions to become a long-term net exporter of alumina.

4. Domestic alumina prices have a risk of falling back

The domestic alumina price is mainly due to the mine rectification and environmental supervision in Shanxi. The supply of bauxite in the northern region is tight. In line with the negative news of the overseas giants, internal and external linkages began. At the end of June, domestic alumina prices went out of two. Round up. Since September, the tension in the northern ore has eased slightly, the price of bauxite has remained high, and domestic companies have increased their overseas ore procurement. In addition, the expectation that Hydro and RUSAL will resume normal operations will cause overseas alumina prices to start to fall, and the internal and external price gaps will shrink. The internal and external factors of the price of Lido alumina in the previous period have been weakened to varying degrees. The domestic alumina price is no longer rising, and the alumina price has a risk of falling back considering the speculation part driven by the external price difference in the previous period.

Looking at the price of electrolytic aluminum, the heat of the cost of alumina in August has faded. After entering September, the drag on consumption has become more apparent, and Shanghai Aluminum has entered the downward channel. In the short term, it is difficult for alumina to bring upward momentum to Shanghai Aluminum, and as prices fall, it may increase the downward trend of the disk. However, as the first major cost item of electrolytic aluminum, the absolute price of alumina is still at a high level in the year. The absolute cost of electrolytic aluminum is still high. There is a large loss in the industry, and the cost still has a bottom support for the price. In the short-term, after the cost returns to the bottom support, we believe that the space under Shanghai Aluminum 14500 is small, there is stocking in the downstream before the festival, the inventory of aluminum ingots is faster, and the macro level is good news, Shanghai aluminum may rebound.