The aluminum market has finally reached a deficit, rather than a supply overflow. This is due in large part to a strong London Metal Exchange (LME) price — now trading at almost $2,100 per metric ton, the highest since 2013 — and raised physical premiums.
However, two things could potentially affect the aluminum market, and both have to do with China: growing aluminum production in China, and more semi-manufactured products being shipped out of the country.
While production has been steadily on the rise in China, the story has been different elsewhere. Worldwide yearly production in July was 24.38 million tons, down from an all-time high of 25.92 million tons in October 2011. New start-ups are popping up all over the world — specifically the Gulf region — forcing higher-cost facilities to shut down. Alcoa, for instance, recently closed one if its older smelters located in Italy.
From October 2011 to this past July, Chinese production has increased by 5.7 million tons per year to 23.28 million tons in July. Yet, most aluminum produced in China stays in China. In 2006, China’s government raised the tax on exports to 15 percent. The Shanghai price can barely hold its ground in comparison to the LME price: China’s total imports have lowered this summer, from 109,000 tons from February to April 2014 to only 19,000.
China is able to get around its country’s heavy export tax by producing and exporting aluminum alloys, though not enough to make an impact — the country shipped out a total of 347,000 tons of aluminum alloy last year. Chinese metals manufacturers are given a tax rebate for generating such products; if they alter primary metals just a bit so they pass as a product, then the product qualifies for a tax rebate, rather than getting slapped with an export tax.
There is a fear that these products might not always be what they seem, and might be a cover up for China’s excess aluminum. Now, Chinese exports are only growing. Since July 2013, China has seen a 14 percent increase in product exports. Another fear is that China’s product will fill the Western world’s gaps. The only thing keeping China’s aluminum exports in check is the Chinese government’s export tax, which could be lifted at any time. Regardless, China’s exports are still increasing.
Developed and Written by Dr. Subodh Das and Tara Mahadevan
September 2, 2014
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