China’s Aluminum Curtailments Called In Doubt

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A Reuters report last week suggests relief is in sight for Western manufacturers of aluminum semi-finished products under pressure from growing Chinese exports.

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Headlining how China’s semi-finished aluminum exports fell for a third straight month in August, the article cites punitive duties imposed by the United States and India on Chinese aluminum foil as a reason for the decline. Semi-finished exports stood at 360,000 metric tons last month, Reuters reported, quoting revised customs data. That figure is down 3.2% on the same month a year ago and down 7.7% from 390,000 tons in July.

Although the monthly export figure is the lowest since February 2017, the first eight months of this year still showed a 5.2% increase versus the same period in 2016. Further data seemed to conflict with the argument that the foil duties were the cause of the decline in recent months. January to August foil exports were up 10.1% at just under 800,000 tons. Although they have dropped in recent months – down 4.9% year-over-year and down 6% from July, those drops only account for 5-6,000 tons per month of lost semis exports. The vast majority, 30,000 tons per month of reduced exports, are coming from extrusions.

Quoting Paul Adkins of AZ China, the report identified a substantial 29% slump in exports of extruded aluminum bars, rods and profiles as the main cause for the overall falls in semis exports despite an increase in flat rolled numbers. The main culprit appears to be U.S. tariff action against extrusions and helps explain why Chinese extrusion mills have been so aggressive in Europe in recent weeks, dropping conversion premiums for extrusions (possibly in an attempt to make up for lost sales to the U.S.).

With Chinese extrusion mills on less than 30-day delivery schedules they are clearly not overly busy. This suggests that although domestic demand has been steady, it has not been as strong an influence on primary metal prices as investor appetite for bidding up the futures markets would suggest. That has more to do with environmentally motivated capacity curtailments creating a narrative of shortages — resulting in speculators building strong net long positions and substantial primary metal prices rises — than it does any genuine tightness in supply.

An Aluminium Insider article discussing the findings of a report called the China Beige Book by a private, China-based analyst raises questions about the sustainability of recent rapid price rises and if they are based purely on the premise of reduced supply.

The study states that, despite numbers released by Beijing, overall capacity in the aluminum market has experienced a net rise over the last six consecutive quarters. At the same time, the economy is experiencing a slow-down. “Sector-wide growth took a dive across the board—revenue, profits, output, export orders, volumes, hiring, capex, borrowing, wages, and sales prices,” explained the report, suggesting perceptions of tight supply are misplaced and speculator-driven.

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If that is the case, European extruders may not be alone in facing increased competition this winter from China’s semi-finished product mills, as they seek to secure markets for a wide range of semi-finished products propelled by a cooling domestic market.

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