Continued from Part One.
And yet with the cost of aluminum production notoriously high in China, even in the lower-cost western provinces, many analysts have been looking for production cutbacks in China as being the catalyst for a move to supply balance and higher prices.
Arguably China is a market unto itself. Tariffs or lack of export incentives make imports and exports of primary aluminum negligible in comparison to installed capacity, yet it is the hope that mass closures in China will force the country to import primary metal that has long been a plank of the expectation that prices would move higher over time.
Cote observes Chinese demand will likely be in the region of 9 percent per year as GDP grows at around 8 percent, and rightly points out this is off a much higher base than five to 10 years ago, making even 9 percent growth equivalent to adding some 2 million tons of additional demand a year.
Whether plant closures in the rest of the world outside of China, coupled with a continuation of the long-term financing trade that has held nearly 9-10 million tons of aluminum in isolation from the physical market, will together be enough to engineer higher prices remains a topic of much debate.
What can be said is that however much macroeconomic factors and swings in risk appetite move short-term prices, in the long run, supply/demand and cost of production tend to win out, and at current prices many producers, in the West and even in China, must be pondering the long-term viability of their higher cost assets.