Recent smelter closures have seen global aluminum production drop in July for the first time since Q1. Output dropped to 112,000 tons per day in July from 114,100 tons per day in June according to a Reuters report. That equates to an annualized drop of 640,000 tons conveniently very close to the 700,000 tons predicted by us recently as the capacity in Henan province that had been earmarked for closure following government directives to close out dated, polluting and less efficient plants. In fact while most of the drop did come from China, it may have had more to do with low prices squeezing producers margins than the government directives.
At the same time exports from China have almost doubled this year to 1.03 million tons as a mix of primary metal chasing higher physical premiums and downstream semi finished products have found ready export markets. Some downstream products such as small extrusions still carry export rebates of 13-15% but volume bar and plates products had export rebates slashed last year and the only exports now are those miss-labeled as a finished product a frequent tax avoidance game played by Chinese exporters brave enough to take on the customs inspections at ports.
Bloomberg reported that China became a net exporter of aluminum for a second month in July as imports plummeted and exports stayed firm. The paper suggests this is due to falling domestic demand and it’s true to say inventory in Chinese domestic warehouses has jumped 65% this year as production surged to a record 1.42 million tons per month prior to the recent closures.
Outside of China, smelters in North America and the Middle East have closed following power outages. Rio Tinto Alcan’s Laterriere smelter in Quebec lost one of its two pot-lines last month following a transformer failure. Production could be down for weeks or months, details are almost non-existent. Likewise Norsk Hydro’s JV Qatalum smelter in Qatar experienced a power failure this month as it was ramping up towards its 585,000-ton capacity. How much of the plant has been effected is uncertain but estimates are up to 120,000 tons of production capacity down.
None of this seems to have impacted the price. Wider fears about growth in the US and China seem to be driving equity markets at present and the metals prices are taking a lead from that. If prices continue to slide towards $2000 per ton there will be less incentive for marginal capacity to be brought on-stream in China over coming months. In the medium term prices are expected to rise but in the short term the markets are looking rather uncertain.