Scraping China export taxes may worsen aluminium oversupply problem

China is already infamous for its excess production of aluminium causing a global oversupply hampering the aluminium prices. Now as they announce scraping the export taxes on some products, they may worsen the situation even further.

While the world aluminium producers hurried to cut production to reduce supply and boost aluminium prices, China continued its relentless production despite facing crippling losses. Suffering aluminium smelters were buoyed by government subsidies creating a disparity in the global aluminium situation.

The world aluminium industry, outside China, faced aluminium deficiency while China was in oversupply. Still the situation was in control because of China’s duty placed on the export of primary metal.

Ma Kai, a Beijing-based analyst at China International Capital Corp, “The policy will improve China’s aluminum market by encouraging exports and reducing domestic oversupply, but will increase global aluminum supply. Overseas aluminum premiums will be damped, while rising Chinese exports will also have a negative impact on LME aluminum prices.”

Aluminium prices are already down by 3.9% this year while Rusal, the world’s largest aluminium producer, reported on Wednesday that its average aluminium sale price fell 5.7 percent in the first quarter.

The largest producer in US, Alcoa predicts that aluminium will return to global oversupply facing the slowest rate of growth in global consumption in three years. It also mentioned that China is likely to add more than 80 percent of new global capacity this year.