Aluminium Cost Update

The fall in alumina and raw material prices has led to a sharp drop in aluminium costs of production. Given the current low prices environment , this has provided some respite to producers. Nevertheless around 40% of producers are still unprofitable and demand for Value Added Products has dried up. As such we are seeing a shift in smelter production towards remelt ingot which commands a smaller premium than VAP but is at least LME/Warehouse deliverable. Meanwhile in China, all eyes are on the SRB but it might be premature to expect an intervention as support to smelters typically starts on a provincial level. The Yunnan province has already introduced a storage initiative to support producer s and SHFE aluminium prices have risen. Our view is that given the collapse in the automobile sector, unless there are substantial cuts in aluminium production then we will be heading for weak prices for the remainder of the year.