China’s unprecedented aluminum production is expected to persist through the end of the year, buoyed by reduced supply risks at a critical production hub in the country’s south. According to Shanghai Metals Market, national aluminum output is projected to increase by 3% in the fourth quarter compared to the same period last year, reaching 11 million tons. This optimistic forecast hinges on smelters in Yunnan avoiding production cuts for the first time in four years, thanks to a stable supply of electricity.
In August, China’s smelters, which produce nearly half of the world’s aluminum, achieved a record output of 3.69 million tons, as reported by the research firm, whose estimates slightly diverge from official figures. While September is expected to see a slight decline, production is anticipated to rebound, culminating in an output of 3.72 million tons by December, according to SMM.
Despite a slowing economy, demand for aluminum remains robust, driven by the metal’s expanding use in clean energy and power transmission applications. However, aluminum production is highly energy-intensive. In Yunnan, which contributes approximately 12% of China’s total aluminum supply, smelters have traditionally depended on hydropower, which has been constrained by recent droughts.
This year, though, an unpredictable climate has brought significant rainfall, which is expected to keep reservoirs replenished through the drier winter months. Hydropower generation increased by 22% to 882 billion kilowatt-hours in the first eight months of the year. Additionally, China has amassed substantial coal stockpiles, its primary fuel source, further reducing the risk of production interruptions at smelters nationwide.
Last week, the government’s planning agency announced that China has sufficient coal reserves to ensure heating supplies during the colder months. In Yunnan, local authorities confirmed that they will not impose power supply restrictions on aluminum smelters during winter and spring due to ample hydropower and coal resources, as reported by Xinhua News Agency at the end of last month.
China is likely to welcome the additional aluminum, as the market remains tight due to rising demand from electric vehicles and solar energy, compounded by the government’s recent wave of economic stimulus, according to SMM analyst Li Jiahui. This persistent demand is expected to keep aluminum prices elevated, which reached a two-year high in May. Furthermore, inventories have plummeted more than 20% from their peak in March, now standing at 656,000 tons, according to SMM data.
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