LONDON: China produced a record 3.42 million tonnes of primary aluminium in May as the country’s smelters continue to ramp up run-rates. The country’s annualised production has surged by 3.66 million tonnes over the first five months of the year culminating in last month’s highest ever operating rate of 40.27 million tonnes, according to the International Aluminium Institute (IAI).

Chinese smelters are resurgent thanks to an easing of the power crunch that constrained production for much of last year. This year it is European smelters facing a power crisis as electricity prices soar in the wake of Russia’s invasion of Ukraine. Europe’s energy woes have dragged down annualised production outside of China by 460,000 tonnes so far this year.

China’s share of global output was 58.91% in May, a ratio that has only been exceeded once before in June 2017, a historical marker that may be unreliable given the lack of consistent data five years ago. This time last year it was Chinese operators that were struggling with energy supplies for their power-hungry smelters. Drought in hydro-rich Yunnan province combined with an over-zealous application of energy efficiency targets caused national aluminium output to slide by over two million tonnes annualised in 2021.

Those targets have been loosened and China has boosted coal production to assuage last year’s rolling energy crisis. Improved power pricing and strong aluminium prices have generated a predictable rebound in Chinese run-rates, which after last year’s pause are now once again edging up towards Beijing’s 45 million tonne per year capacity cap.

The turnaround in Chinese smelter fortunes is evident from the country’s trade in unwrought metal. Imports boomed in 2021 as domestic production failed to match first-use demand from product manufacturers. Inbound shipments of primary metal totalled a record 1.58 million tonnes.

This year, however, China has been exporting unwrought metal despite a hefty 15% duty on exports of aluminium in this form. Much of what is leaving China is heading for Europe, which is now experiencing its own energy-driven aluminium meltdown.

European power prices were already heading north before Russia launched its “special military operation” in Ukraine. The ensuing tightening of gas supplies to Europe has caused power prices to surge by 400% over the last year, which is a big problem for aluminium producers given power accounts for around 40% of their smelting costs.

Annualised production in Western Europe has fallen by around 500,000 tonnes over the last year, according to the IAI. May’s run-rate of 2.96 million tonnes was the lowest this century.

The energy crisis is primarily impacting smelters in Germany, France and the Netherlands with those in Norway and Iceland cushioned by access to hydro and geothermal power respectively. Capacity in both countries has been creeping higher over the last year or so, which is probably masking the full production loss elsewhere in the IAI’s Western European numbers. Eastern European aluminium production is also sliding.

Cumulative output slipped by 1.5% year-on-year over the first five months of the year, reflecting curtailments in Romania, Montenegro and the Slovak Republic.

The IAI’s latest monthly update shows no evidence of falling production at Russia’s Rusal despite sanctions disrupting the flow of raw material to the company’s Siberian smelters. Indeed, it is possible that the ramp-up of the new Taishet plant is offsetting curtailments in the rest of Eastern Europe.