South32 and Alumina Ltd shares edged higher on China’s capacity cut news

Shares of South32 Ltd and Alumina Ltd jumped by more than 9% on Thursday March 2 as news about China imposing curbs on steel, aluminium production started circulating in the market.

Beijing released a new draft earlier this week which proposed 30% aluminium capacity cut and 50% alumina capacity cut in “Beijing, Tianjin, Hebei, and surrounding areas” in order to curb pollution in Northern China, mostly in winter season. Earlier than this, Chinese government enforced a shut-down on production plants in 2008, to cut pollution levels. 

The production cut however is expected to be implemented not any time before November 2017. An investment information service, Barron’s noted that, the global markets has reacted positively to the news as supply cut in China can alter the global market dynamics for alumina and aluminium.   What could happen tomorrow or in the near future has affected the current market boosting investor’s confidence.

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Australian aluminium and alumina stocks have taken off specially because; Australia is the next export hub for alumina after China. If China’s local manufacturers can’t get enough steel and aluminium from domestic producers, they’ll have to import it from overseas. That will open up new business opportunities for companies like South32 and Alumina. It will hold true for other non-Australian steel and aluminium producers, such as US giant, Alcoa Corp.  

The Barron’s however said that there is a long time gap between the announcement and the implantation and anything could happen to the markets, economy, and the steel and aluminium sector during the period.