AZ China has completed its analysis of the cash cost curve for Q2 2014. Overall, costs went down, but not enough to save many producers.
The analysis threw out many interesting details:
- The average cash cost of production came in at RMB14,150/t (US$2,280). This is a reduction of 2% over Q1.
- The spread of costs ranged from below RMB11,000 (US$1,775) to over RMB16,500 (US$2650).
- Costs went down primarily due to government subsidies reducing the cost of electricity, though the falling price of coal helped some smelters to achieve a lower electricity cost without bureaucratic intervention.
- Surprisingly, alumina costs went down. Cutbacks in primary metal production earlier in the year left the market long in alumina, forcing the price down. With Indonesia no longer supplying bauxite, this input cost is set to rise.
- Other input costs also went down. Anode prices fell thanks to the cost of carbon falling, while over-supply of ALF3 caused that market to reduce prices.
Across the quarter, Shanghai metal prices rose 5% over the lowest price seen in 2014. This and the falling costs have provided relief to the financial performance of smelters. The “break-even point” along the x-axis has shifted right a little, crossing at about the 30% point.
For the record, AZ China has 129 smelters in the total population, but we exclude any smelter which has less than 2 years of data. This means new smelters which are still “bedding down” are excluded, as are smelters which have been idled. Based on our selection criteria, 73 smelters qualified for this analysis.
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