Semis From China Distorting Aluminum Picture

A surge in aluminum exports from China is altering market dynamics for one of the world’s most heavily traded commodities. Because of quirks in China’s tax system, the trend involves reshaping the metal itself, the Wall Street Journal reports.

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Aluminum prices on the Shanghai futures exchange have dropped 8% in the last year to $2,081 a ton amid a sharp rise in supply, compared with a 4% increase in aluminum prices on the London Metal Exchange.

Chinese aluminum exports seem unattractive because the government applies a 15% export tax on each ton sold overseas, a measure that is designed to keep more output at home.

In practice, Chinese smelters are getting around the charge by masking their aluminum exports as semifinished products, also known as “semis,” analysts say. “Primary” aluminum is normally produced in ingots, but the metal can be relatively easily changed into forms that look like products such as door frames or hubcaps. Once exported, the semis can be remelted and recast into desired forms in the destination countries. Our own Stuart Burns wrote about the Chinese semis situation back in September.

The cash price of primary aluminum experienced the biggest price decline of the day, dropping 1.7% on the LME to close at $1,811 per metric ton on Thursday, February 12. On the LME, the 3-month price of aluminum fell 1.6% to $1,831 per metric ton. The cash price of primary Indian aluminum weakened by 0.7%, settling at INR 114.30 ($1.83) per kilogram.

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Prices of Chinese aluminum were down across the board on Thursday. The cash price of Chinese aluminum saw a 0.9% decline to CNY 12,770 ($2,046) per metric ton. The price of Chinese aluminum billet fell to a 30-day low at CNY 12,780 ($2,047) per metric ton after shifting 0.9%. At CNY 13,560 ($2,172) per metric ton, Chinese aluminum bar fell 0.9% yesterday. The price of Chinese aluminum scrap declined 0.8% to CNY 12,400 ($1,986) per metric ton.

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