In order to prevent Chinese aluminum from leaving the country, China’s government has imposed a 15% export tax on every ton of the metal that is bought by foreign buyers. However, Chinese aluminum manufacturers have found a way around the government’s tax, by producing semifinished products, or “semis.” While primary aluminum is usually shipped in blocks, semis are manufactured as door frames or hubcaps, which can then be liquefied and molded into other products. Because China’s need for aluminum at home is low — need for metals in the country’s infrastructure has decreased — Chinese manufacturers must sell abroad.
Chinese aluminum manufacturers actually profit from creating semifinished aluminum products: they get a 13% tax rebate on semis. It’s difficult to differentiate how much of China’s aluminum exports are semis; in December, the country’s overseas sales added up to 488,000 tons, a 136% surge from January 2014. China’s output also increased to combat rising prices.
The increase in aluminum exports from China is also reshaping the aluminum market: growth of Chinese exports in Asia has caused buyers’ urgent delivery premiums to decline. Because of the influx of Chinese aluminum, Malaysian and Australian aluminum manufacturers have redirected their aluminum exports to other regions Australia is one of the biggest exporters to Asia, but China is producing and exporting aluminum at a rapid rate. While countries like the US might benefit from China’s oversupply, China’s output is becoming a hindrance to aluminum premiums. It might take worldwide aluminum supplies a decade to recover from the flood of Chinese aluminum.
Will China ever play by fair market rules? We suppose not, as long as it doesn’t benefit them.
Developed and Written by Dr. Subodh Das and Tara Mahadevan
February 16, 2015
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