China's carbon-neutral target to benefit domestic aluminum market in the long run: sources

    Chinese local governments are expected to release stricter policies to curb any additions of primary aluminum capacities in response to the country's target to reach a peak of carbon emissions by 2030 and carbon-neutral by 2060, market sources said,

    Market players S&P Global Platts spoke to shared an optimistic outlook on the country's primary aluminum prices and profit margins in the medium to long term on the expectation that the carbon-neutral goals will curb the rise in production and benefit demand from downstream users like new energy vehicles and photovoltaic sectors, although it has yet to see any specific policies.

    Inner Mongolia's latest move to not approve any additions of primary aluminum and its cancellation of preferential electricity prices might indicate the beginning for stricter carbon emission control, sources said.

    As one of the largest electricity consumers, the primary aluminum industry has drawn huge concerns and the production growth might be curbed by the policies to lower carbon emissions.

    The expected policies will likely increase the production cost for aluminum smelters with thermal power production and curb expansions in aluminum capacity.

    About 85% of Chinese smelters adopted thermal power production while only 10% adopted hydropower production, according to data reported by Chinese media. The increasing cost might add difficulties to the replacement of capacities planned in the regions with thermal power production.

    Chinese smelters need to get the quotas for primary aluminum capacity if they sought to build new projects or expand their capacities in line with the supply side reform policy. The capacity quotas became sparse over the past two years as the ceiling for China's primary aluminum capacity is estimated to be around 45 million mt/year.

    China's primary aluminum output totaled 37.08 million mt in 2020, which consumed electricity of about 500.6 billion KWh, given that it consumes electricity of 13,500 KWh when producing 1 mt of primary aluminum, S&P Global Platts calculations showed. This accounted for 6.7% of the country's total electricity consumption.

    Aluminum Corporation of China and Shandong Weiqiao Pioneering Group—the largest two aluminum producers of China had called for Chinese producers to reach alumina and aluminum capacity/output peak during the 14th five-year plan in a joint proposal to speed up the green and low carbon development of its aluminum industry in mid-January.