UC Rusal Proposes an OPEC of Aluminum to, Somehow, Contain Chinese Production

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If you can’t beat them, then join them? That may be the gist of UC Rusal’s latest proposal for dealing with Chinese aluminum overproduction: an OPEC-like organization for the global aluminum industry.

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In a Reuters article the world’s largest aluminiu producer outside of China was quoted by the TASS news agency at an economic conference in Russia’s Black Sea resort of Sochi as suggesting that Industry ministers should get together and explore ways and means of creating a producers club.

Liquid metal

The Chinese aluminum industry has been able to cut costs by essentially selling liquid metal to nearby product manufacturers. Source: Adobe Stock/Kybele.

The trade minister quoted by TASS, Denis Manturov, talked of creating a single policy in the area of standards and technology but, in reality, there would be little to be gained if that was the sole purpose. More attractive to western smelters in general, and Rusal in particular, would be any mechanism that curbed China’s growing dominance of the primary aluminum market.

Rusal was, until a few years ago the world’s largest aluminum producer. In 2016 Rusal produced 3.685 million metric tons, according to Reuters, but China now produces over half the world’s aluminum with Chinese producers overtaking the Russian firm. China’s Hongqiao is now the world’s biggest aluminum producer overtaking Rusal in 2015 and again in 2016.

China exported more aluminum than Rusal produced in total in the last two years, over 4 million mt. In spite of western smelters cutting back production, the global market remains in oversupply as China continues to add new capacity with ever-lower cost production. Companies like Rusal operating in an environment of centralized state control would naturally gravitate to the idea of finding a centralized coordinated mechanism for regulating global supply and supporting prices, but it is questionable it would work.

Whether Rusal’s  OPEC-style aluminum club finds traction with Chinese or, indeed, other western producers remains to be seen but so far the reception appears to be lukewarm. Let’s hope that remains the case, OPEC can hardly be said to have done any favors for oil markets since its inception in September 1960. Rather, it’s been the source of as much instability as stability over the years.

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