Chinese economy reaches low growth phase; analysts see an oversupplied aluminium market on slow demand

According to a report from Platts; the low growth period in China’s economy has already arrived in 2019 despite stimulus measures and supply side reforms. The market outlook is bearish and China's downstream aluminium sector has already entered its off season due to poor economic data. The boom has slowed down in the construction sector and there have been fewer investments from the market participants.

According to China Nonferrous Metals Industry Association, slow demand from construction and electrical sector has restricted aluminium demand growth to just 1% in 2019. Despite government measures to support demand growth, the impact is not seen. Because of lacklustre demand, domestic aluminium prices are not likely to see much upward movement in 2019.

The Shanghai Futures Exchange's (SHFE) most active August aluminium contracts closed at RMB 13,740 per tonne on Wednesday, higher from RMB 13,650 per tonne from Monday. However, the contract is struggling to cross the RMB 40,000 per tonne level.

According to Beijing Antaike a generally weaker global economy has affected aluminium demand in the Chinese car and real estate sectors. Chinese stimulus policies have also faced difficulties in implementation leading to a gloomy outlook at the domestic sector. 

On the supply side China’s aluminium production is not going to slow down in 2019. Antaike forecasts China would add 1 million tpy new aluminium capacity in 2019 to the current capacity of 40.8 million tpy. The Chinese Ministry of Industry and Information Technology assured in May that they would cap new aluminium output capacity to handle the slow demand phase and control oversupply.

According to the data from National Bureau of Statistics (NBS), China produced 14.45 million tonnes of aluminium in the first five months of 2019. That was up 2.7 per cent from the same period last year and it does not project a pretty picture considering the slow demand.