Chinese Aluminum Exports Rising, Overproduction and Surplus Imminent

Two apparently unrelated articles should sound a warning for western aluminum producers.

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Following hot on the heels of Alcoa’s prediction that next year will see a global surplus of 326,000 tons, compared with the deficit it had predicted as recently as January, due to Chinese exports spurred by overproduction it’s not surprise the fundamentals appear a little worse for wear.

Lower Power Costs, Highest Production

A FT article reports that rather than discouraging overproduction, Beijing is cutting power costs across the economy which will have the effect of supporting producers already seeking every opportunity to export downstream products in the face of cooling domestic demand.

Just last week, we were visited by a Chinese producer promoting flat-rolled and extruded products from a new plant to be commissioned later this year. The plant will have a capacity of two million tons of finished aluminum. That one plant will have more capacity than the whole European semi-finished products industry.

Where is that metal going to go? A Bloomberg article suggests the prospects of it being consumed domestically are limited.

Surplus Aluminum Options

“China’s metals demand is plummeting,” said Bloomberg, quoting Kenneth Hoffman, a metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts before writing his report. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”

True, part of this new mill’s specialties will be beverage can stock and Litho sheet, both used in consumer applications, but it also includes some of the largest plate production facilities in the world for which major rail, aerospace and transportation industries are required. Nor of course is this plant alone, it is but one of a dozen being built across China.

China has struggled at times to export aluminum but over the last year the Shanghai Futures Exchange price has dropped relative to the LME and Chinese producers are becoming increasingly competitive across Asia displacing traditional western mills from the region. Chinese net aluminum and product (semi-finished products) exports are set to exceed 5-million metric tons this year, which represents about 18% of the rest of the world’s consumption, according to Citi). In the first two months they surged by 79% as consumption following the Lunar New Year failed to pick up. If Bloomberg’s assessment of the level of activity in China is correct and supported by a reduction in power costs this figure is likely to get worse rather than better.

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