Aluminium prices hit a 1-month high, China still not cutting capacity

A recovery in demand is a key factor supporting aluminium prices this year. China unleashed a renewed government stimulus in the form of credit expansion and infrastructure building in December, which has — at least momentarily — improved the demand side of the equation for industrial metals.

Trade figures this year showed China’s relatively strong appetite for aluminium. Higher demand means exporting less as Chinese companies are consuming more aluminium domestically. China’s exports of unwrought aluminium and aluminium semis were 420,000 metric tons in May. From January to May, exports are down 7.9 per cent compared to the same period last year.

Overcapacity Still an Issue

China and the U.S. failed to reach an agreement on how to address excess global aluminium capacity in early June. It seems the economy is in no mood to curtail new generation of aluminium smelter capacity as of now.

What Does China Actually Want?

China wants to achieve market economy status in the World Trade Organization. But this goal is jeopardized by steel organizations and policymakers unhappy with the prospect of even heavier Chinese exports and less freedom in dealing with them.

The U.S.-based trade body Aluminium Association has also been fighting against China being granted market economy status, but it’s mainly doing it alone. The aluminium sector is simply not as important for European and U.S. politicians as the steel sector.

What Aluminium Prices Mean for Metal Buyers

Aluminium prices are acting strong, thanks to a recovery in demand, a weak dollar and improved sentiment in commodity markets. Still, how much can prices really climb while cutting aluminium capacity - is not on the top of Beijing’s agenda.