China aluminium exports and stocks rise in August causing worry in the global scenario

The global aluminium industry has been abuzz with the trade imbalance caused by the rise in Chinese aluminium exports. Especially in U.S., producers like Alcoa (AA) and Century have been vocal about Chinese aluminium exports damaging the U.S. and global market.

After a dramatic rise in China’s aluminium exports in 2015 by 10% YoY and being criticised by its trade partners for unethical export, China announced that it would curtail its excess aluminium capacity. Chinese aluminium production has however dropped 3.1% YoY during January to July. Cut down on capacity coupled with a rise in domestic demand kept Chinese aluminium exports in check so far.

However, this seemed to be a temporary phenomenon as China has restarted most of its closed capacity after a rise in LME and SME prices in August and released the aluminium inventories in the market.

In the month of August, China exported 410,000 tonnes of unwrought aluminium which records a YOY increase of 20.4%. Sequentially, Chinese aluminium exports have been rising for two consecutive months. Compared to the steep drop in Chinese aluminium exports during H1 2016, the country’s aluminium imports are still low in the first eight months of the year.

Although Chinese production fell in H1 2016, SMM reports that the country’s aluminium supply would rise in H2 2016. Domestic aluminium stocks in China stood slightly above 300,000 million tonnes during the end of August, up from 260,000-300,00 million tonnes from the previous month. According to market expert, the inventory levels may rise further to around 400,000-500,000 in Q4, sources said.

Although the increase in exports is a concern, things aren’t as bad as it appears. If metal prices continue to stay low, Chinese smelters would be selling metal at a depressed price and thereby would be making losses. This would automatically lead to a decline in the country’s aluminium exports.

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