China’s continued oversupply likely to boost aluminium exports

China’s aluminium market continues to be in oversupply pulling down the local aluminium prices and increasing the appeal for exporting the aluminium overseas. Traders and analysts believe that this trend is likely to continue in the coming months.

The increased inflow of Chinese aluminium market will definitely control the widening deficit seen in the western world but also trigger a fierce competition in the market as the top western producers are at the moment negotiating high premiums for the physical delivery of the metal.

Analysts state that the reason the Chinese producers are so active despite the falling prices is because they do not base their production volumes on the market economies but rather on debt. As long as they have their debt to repay, they will continue to produce aluminium.

Even the local government aids the aluminium producers by offering subsidized power costs but despite that, more that half of China’s capacity is running at a loss and the domestic market is heading for a surplus of around 1-1.3 million tonnes this year.

Aluminium prices on the SHFE have already hit several record lows in January recorded at Yuan 12,685 ($2,045) per tonne on Tuesday which is 16% below the price seen in mid-September. Consequently, the Chinese aluminium exports have also risen, with unwrought aluminium and aluminium products exports rising 38% from 390,000 tonnes in November to 540,000 tonnes in December.

Overall aluminium products exports had risen by 19% last year and analysts believe the trend will continue it 2015 as well.