Workers ride on a motor rickshaw through an aluminium ingots depot in Wuxi, Jiangsu province. China is producing more than it needs with record amounts of the metal being exported, adding to a global glut that has sent prices to six-year lows.
China is likely to sell more aluminium in world markets by offering its struggling smelters cheaper power prices to keep them operating, adding to growing trade tensions with rival producers in countries such as the US and Russia.
The world’s top aluminium producer is making far more than it needs with record amounts of the metal being exported, adding to a global glut that has sent prices to six-year lows.
The surge in shipments is already triggering calls for action to stem the flow in some countries and risks creating similar anger that soaring Chinese steel sales have caused.
China exported a record 3.1mn tonnes of semi-manufactured aluminium products in the first 9 months of the year, even with a dip in the third-quarter when weaker global prices made exporting less attractive. “As the price differential becomes attractive for exports, it’s that much easier to hit the ‘go’ button and start exporting again,” said analyst Paul Adkins of consultancy AZ China, noting recent falls in local prices would reinvigorate Chinese exports.
Illustrating growing export tensions, the US extruders council last week referred China’s second-biggest aluminium extruder to US regulators after accusing it of evading import duties. China Zhongwang Holdings denied the accusation.
Top producer Rusal has also petitioned for the issue to be brought in front of the world’s top customs body.
A source at a global trading house in Singapore said with the Chinese market flooded there was pressure to export and this would heat up competition with global producers like Alcoa and Norsk Hydros. Chinese aluminium prices have hit successive record lows for most of October, and are down more than 20% this year approaching 10,000 yuan ($1,578) a tonne. Global prices are $1,475 a tonne.
The falls have come after China said it planned to cut wholesale prices of electricity for the second time this year, a move that would cut production costs for aluminium producers further.
AZ China estimates average monthly aluminium production costs at at least a five-year low around 13,000 yuan a tonne, as power, carbon and alumina costs fall.
Production has been slow to shut as some integrated producers make profits in other areas, and local governments offer subsidies to shore up jobs and economic growth. Aluminum Corp of China (Chinalco), the country’s top producer of the metal, has held back the closure of its biggest smelter after the local government offered it power price cuts, industry sources said. The firm had initially planned to shut the smelter two weeks ago.
Wang Rong, an analyst at Guotai Junan Futures in Shanghai, estimated that only 2mn tonnes of capacity would be shut down by the end of 2015 out of 37-38mn tonnes of total capacity.
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