Falling aluminium stocks and semis export in China: is it going to help the white metal?

According to the data released by the General Administration of Customs, China's total exports of unwrought aluminium and aluminium semis were 380,000 mt in June. This represents a YoY decline of 15.4%. Chinese aluminium exports have fallen about 9% YoY in the first six months of 2016.

Total shipment of aluminium semis was down 15.7 per cent year-on-year at 32,319 million tonnes (mt) in June, whereas it stood at 184,385mt from January till June 2016, down 20 per cent from the corresponding period previous year.

Chinese export of aluminium bar, rod, and profile declined 16 per cent YoY to reach at 4,133 mt in June. Exports of aluminium plate, sheet, and strip, aluminium tube (including accessories), and aluminium structures and components too declined YoY to stand at 20,770mt, 797mt, and 296mt respectively.

So, what does fewer Chinese aluminium exports imply to the rest of the world?  Lower Chinese aluminium exports signal strong aluminium demand in China coupled with some supply -side discipline cut from Chinese smelters.

Meanwhile, an SMM data showed that aluminium stocks in China’s five major markets are still on the decline in July even after touching 7-year low. According to an International Aluminium Institute report, China produced about 2.7 million metric tons of aluminium in June, a YoY decline of 1.2%. Chinese aluminium production has now fallen on a YoY basis in five out of the last six months. On a year-to-date basis, Chinese aluminium production has fallen by about 3.3% as compared to the corresponding period in 2015.

After critical opposition from US and UK regarding the unfair trade practice of China, and the investigations of the fake semis market and resulting anti-dumping measures taken by the United States, Australia, and the European Union, a drop in production and export from China is seen as a deliberate discipline on part of Chinese smelters.

Aluminium sank to its lowest USD1,584 in six weeks on Wednesday 27 July, on persistent worries about oversupply from Chinese smelters. However, a strong demand lifted prices off the lows. As soon as there is a price recovery, Chinese smelters will restart their close capacity. So, a drop in Chinese stock and export does not necessarily bring long term good news to the market.

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