China’s aluminium exports flood market, keep prices low

China’s surging exports of aluminium are becoming as contentious as its fast-rising shipments of steel as prices of the metal used in cars to beverage cans continue to hover just above their six-year low.

Despite a dip last month, China’s aluminium exports are up 14.4 per cent so far this year, according to official data, as companies there take advantage of their ability to produce at a lower cost than international rivals to seize market share.

While major aluminium companies like US-based Alcoa have cut production this year, Chinese output has risen by 18 per cent year to date, according to the International Aluminium Institute, a supply flood that has helped keep prices depressed.

Benchmark three-month aluminium futures were trading at around $US1492 a tonne on the London Metal Exchange yesterday, slightly higher than a six-year low of $US1462.50 a tonne touched on October 29.

There’s little sign China will cut back soon, meaning few expect any imminent recovery in aluminium prices. Chinese producers have added about 3 million tonnes of new annual smelting capacity this year, and could add another 1 million tonnes before year-end, according to Ivan Szpakowski, a Hong Kong-based Citibank analyst.

“The capacity additions are very bearish for prices. It has driven the Chinese market into increasing oversupply and forced them to export more,” said Mr Szpakowski, who expects only a moderate recovery for aluminium next year.

Protests against China’s aluminium export rise have been growing louder, with producers from the US to India demanding measures to shore up their domestic industries.

“Due to a rise in imports from China, domestic Indian producers are getting choked. There is tremendous subsidization of aluminium production in China,” said Abhijit Pati, chief executive officer of Vedanta Group’s aluminium business.

He said India’s import tax on aluminium should be increased to 10 per cent from the current level of 5 per cent and 2.5 per cent on primary aluminium and aluminium scrap.

China’s share of global aluminium production had expanded to 50 per cent from 11 per cent in 2000, said Heidi Brock, president of the Aluminium Association, which represents primary aluminium producers in the US and other countries, in a recent speech.

“We would urge the Chinese government to make concrete commitments to address the problems of both overproduction and emissions from their domestic primarily aluminium production,” she said.

China’s Non-Ferrous Metals Industry Association has hit back at suggestions companies there are dumping aluminium on international markets, saying that China’s government has room to increase tax rebates on exported aluminium products.

Chinese smelters can withstand low international prices in part because of the government support they receive, analysts say.

Chinese producers often benefit from “opaque” tax credits, or cheap loans made to them by local governments, according to a report by Nomura.

Even when Chinese smelters look set to cut output, closures may prove temporary. Nomura cites the example of Chinese state-run producer Chalco, which announced it would close its smelter in Liancheng in October, with a capacity to produce 530,000 tonnes a year. After the local government said it would subsidise power supply to the smelter, Chalco reversed its decision, saying it would only cut capacity by 150,000 tonnes a year.

In all, while Chinese producers had closed 3 million tonnes of annual aluminium-producing capacity since 2010, they had added an additional 17 million tonnes worth, Nomura said.

The burden of balancing the aluminium market looks set to be borne mostly by producers elsewhere. Alcoa on November 3 said it would cut smelting capacity by 503,000 tonnes per annum.

US-based Century Aluminium has also announced cuts at its ¬Sebree smelter.

“This is a direct result of Chinese overcapacity and the improper export of heavily-subsidised Chinese aluminium products that has caused the significant decline in the price of aluminium,” said Michael Bless, Century’s president and chief executive.

“Sebree’s … continued operation is now in jeopardy due to unfair Chinese trade behaviour.”

Rusal, the world’s biggest aluminium producer, would consider a cut of 200,000 tonnes of annual output over the next six to nine months, said deputy chief executive Oleg Mukhamedshin.