In a surprise move, the Chinese Ministry of Finance announced this week that, effective May 1, they are scrapping export tariffs on alloyed and unalloyed aluminum bars and rods, according to Reuters.
Along with similar changes to a host of other metals including molybdenum, tungsten and rare earth metals, Beijing has moved to support domestic aluminum producers by opening the flood gates to export markets. This will have the effect of reducing the domestic glut of metal, supporting domestic prices and depressing prices in overseas markets.
China Increases Exports
Even with tariffs in place, China has been rapidly ramping up exports, Reuters said. China’s exports of semi-finished aluminum products rose 49% year-on-year to 1.07 million metric tons in the first quarter, of which 182,257 mt were bars, rods and profiles.
With a domestic primary production capacity of 36 million metric tons and actual production last year of about 27.5 mmt Chinese producers have the ability to easily increase production without creating any shortages in their domestic market. Recent power tariff reductions by the national grid will aid smelters in controlling costs even if prices in export markets fall further.
Aluminum prices stabilized recently with London Metal Exchange aluminum trading in a band between $1,750 and $1,850 per mt and physical delivery premiums falling from peaks in the Fall of last year. Improving growth prospects in North America and Europe has probably encouraged western converters to hope for increasing orders books as the year went on, hopes that look short lived with the prospect of Chinese converters being granted a 13% cost reduction.
Aluminum Stocks Going Up
As if to underline winners and losers, Bloomberg reported Aluminium Corporation China’s stock price leapt 10% before hitting it’s daily limit in Hong Kong while UC Rusal’s fell 3.5% and the firm indicated it could curtail a further 200,000 mt of capacity this year.