Brown fused alumina prices driven downwards

By Sybil Pan
Published: Wednesday, 09 September 2020

Low capacity utilization at China’s kilns for production of brown fused alumina was weighing heavily on the markets, driven by weak demand for refractories.

Weakness in the refractories sector as a result of the global Covid-19 pandemic and related lockdown measures was weighing on a number of upstream markets.

In the Chinese market for brown fused alumina (BFA), participants took a bearish short-term outlook after the majority of kilns were suspended in the coutnry, the world’s largest producer of BFA, owing to the weak conditions.

With the pandemic continuing to sap demand from key downstream sectors such as steelmaking, prices for refractories were coming under considerable downward pressure.

Prior to the outbreak of Covid-19, crude steel demand was expected to reach 1.81 billion tonnes in 2020, according to the World Steel Association. But the association now forecasts steel demand to be around 1.65 billion tonnes this year, due to the effects of pandemic lockdown measures.

The bearish backdrop in such a key end-market has weighed heavily on the upstream refractories sector. BFA, used in the manufacturing of refractory products, has therefore also come under pressure since coronavirus began to quickly spread across the world in early 2020.

Fastmarkets’ price assessment for alumina, fused brown, min 95% Al2O3, refractory sized (0-6mm), fob China, has fallen by more than 15% since April, when price stability from the start of the year was broken due to Covid-19-related lockdowns restricting demand. The price was $600-630 per tonne on August 20, down by $110-120 per tonne from $720-740 per tonne on April 2.

Widespread closures

Industry participants were lamenting the tough times, reporting that the operating rate of BFA kilns across China was only around 20%, with the rest having suspended operations due to the bearish market conditions. There was also a great deal of uncertainty about when these kilns would be restarted.

The total operation rate across China was 20.75% in July, according to market sources. This compared with 41.82% in June. The BFA kilns in the major Chinese production hubs of Guizhou, Shanxi and Henan were at 31%, 40% and 11% in July respectively, the same sources estimated.

Behind the mass closures of BFA plants in China were evolving market fundamentals characterized by the sharp drop of BFA market prices against a relatively firm feedstock price for calcined bauxite. The 15% drop in the price for refractory grade BFA suggested extremely thin demand from consumers in both the seaborne and the domestic markets.

On the supply side, sellers were offering material at cost in an attempt to entice business, while those that were unable to sustain their operations were forced to implement suspensions against the unfavorable backdrop. This, in turn, could drag prices down further should these sellers start to destock, a China-based producer source said.

"The price for certain grades of brown fused alumina could go down further, by around 50-100 yuan [$7-15 per tonne], despite the firm costs, due to inventory destocking," a second fused alumina producer in China told Fastmarkets. "We heard that some factories in Yichuan county and Luoyang city might have closed for good, for several reasons."

At the same time, supply of calcined bauxite in China has been hampered by local environmental and mining regulations, disrupting mining activities and calcination processes.

Resource depletion was a further hurdle to the sourcing of high-grade calcined bauxite used for producing BFA.

Lower-priced WFA

Prices for white fused alumina (WFA) and BFA previously moved in tandem, based on common effects arising from the fundamentals of both markets. But diverging elements have been at work since last year, resulting in a breakdown of this trend and the development of independent price patterns for BFA and WFA.

So far in 2020, the two markets have become increasingly independent of one another, with WFA having deepened its price discount to BFA against a historic premium.

Fastmarkets’ latest assessment price assessment for alumina, fused brown, min 95% Al2O3, refractory sized (0-6mm), fob China, was $600-630 per tonne on August 20, while quotes for WFA were heard as low as $550 per tonne fob China, meaning the discount has increased to $50-80 per tonne from around $30 per tonne in May.

Fastmarkets assessed the price for alumina, fused white, 25kg bags, cif Europe, at €525-690 ($621-817) per tonne on August 20, widening downward by €5 per tonne from €530-690 per tonne on August 6, amid declines in the feedstock price for alumina powder.

Given the high inventory of WFA and the sluggish demand, some market participants expected further drops in the price. Lower WFA prices were expected to add further pressure to those for BFA, given that the former can replace the latter in certain applications because of its higher alumina content, ensuring higher heat-resistance and anti-erosion properties in refractories.

Further weakness

While some industry participants maintained that BFA prices have bottomed out due to being close to or under some producers’ costs, others expected further declines given the bout of destocking taking place amid the widespread closures.

"We have kept the price unchanged because it’s bottoming out. But it might go down further in the near term amid the weak market," a third producer source told Fastmarkets.

"The market might stay relatively quiet in the coming month," he added. "But we are still waiting to see whether the environmental regulations will be as rigid as those of last year, which might support the BFA market."

But demand remained a major issue for the market, participants said.

"There are environmental inspections in Henan now, which would not affect production given that the majority of plants have been shut," another producer source in China said. "Without demand improving, the environmental regulations will have a limited effect on supply."

This article was first published in the September 2020 issue of Metal Market Magazine, which carries in-depth feature articles, analyses and reviews of metal and steel markets.