Weak fundamentals, China capacity cuts to boost aluminium prices: Nalco CMD

Reports indicate 3 Chinese provinces may cut 30% of aluminium smelting and 50% of alumina refining capacity

Weakening Chinese fundamentals and the country's plans to shut down smelting capacities would weigh on LME (London Metal Exchange) aluminium prices, a top executive of the National Aluminium Company (Nalco) said here.

"After averaging $1,854 per tonne in Q1 of 2017 and $1,917 per tonne in Q2 2017, LME three-month price is forecast by leading commodities analyst CRU to average about $2,000 per tonne during Q3 of 2017. Reports have indicated that 30 per cent of aluminium smelting capacity and 50 per cent of alumina refining capacity may be cut in Henan, Shandong, and Shanxi provinces of China if environmental measures are introduced. If China were to curtail capacity, it is expected to be supportive of aluminium prices," Nalco Chairman and Managing Director (CMD) T K Chand said at the company's 36th annual general meeting.

"Expectations of winter shutdowns and Chinese supply reform are among the main reasons that prices are likely to remain firm. Additionally, the US administration in April 2017 has announced that it would begin investigating whether aluminium imports pose a threat to self-sufficiency in the US. This action may lead to higher import duties being levied on aluminium," he added.

Chand said that in the coming days, the aluminium market is going to shine and that the LME prices for aluminium have been continuously moving up from $1,851 per tonne during Q1 2017 to around an average $2,081 per tonne as of now in September 2017.

Both North America and Europe were facing short supply of aluminium and the estimated global production in Q3 of 2017 would be balanced with consumption.
 

This, coupled with the increase in input cost, is likely to hold the price but uncertainty still remains on account of China starting low-cost smelters, surfacing of unreported inventory, and buyers adopting a wait and watch approach.

"In Nalco, we are concerned about rising input cost and availability with respect to caustic soda, aluminium fluoride, coal tar pitch, and CP (calcined petroleum) coke, among other things. The Nalco collective looks forward to the operation and materials department meeting the challenge," said Chand.

To weather the market onslaughts and remain afloat, Nalco is developing a new business model. "The new business model would enable Nalco to strengthen its business by leveraging its core competency in the mining, metals, and energy sectors through modernisation, greenfield and brownfield expansions, and upstream and downstream integration. The model also envisages diversification into green power, IPP (independent power producer), caustic soda, rare metals like titanium, recovery of iron from red mud waste, and merchant mining, which are sectors that are immune to a downturn in the metal market," he said.