According to Bank of America Merrill Lynch’s (BofAML’s) Global Commodity Research team, China needs to curtail its capacity of aluminium in order to rebalance the global market. “If the country's smelters increased production as planned, the global market would be oversupplied to the tune of almost five-million tonnes a year between 2018 to 2020”, it added.
The analysts said, “Indeed, fundamentals on the Chinese market have been so weak that the country's smelters could have almost justified sending primary aluminium abroad, despite a 15% export tax.”
London Metals Exchange (LME) aluminium prices increased when the Obama administration launched a complaint against Chinese aluminium subsidies at the World Trade Organization.
Recently, China ordered aluminium producers to curtain their production capacity in 28 cities during winter months as Beijing has been facing smog problems for years. The country ordered to slash production capacity on aluminium and alumina by more than 30 percent.
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BofAML said, “To pick a few issues, shuttering aluminium smelters temporarily is difficult. By the same token, Xinjiang announced illegal capacity at three of the smelters in the province, but subsequently removed the announcement from public space”.
“There is no alternative to production discipline in China.”
“Beyond that, it is worth noting that the US is fostering its investigating into aluminium imports; also, companies including ARG, Alcoa and Century are all considering to restart smelters,” BofAML added.
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