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Understanding China’s Role In Global Aluminum Markets

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China’s role in global aluminum markets

A commodity market overview isn’t complete without mentioning China. Currently, China dictates the global commodity markets. The iron and steel industries are reeling from the impact of the Chinese slowdown. In this part of the series, we’ll analyze China’s role in global aluminum markets.

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China’s growth story

China’s aluminum consumption increased substantially at the turn of this century. Chinese demand grew 16% since 2000. Global consumption only grew 1% during this period.

China’s aluminum consumption was mainly led by infrastructure growth, increasing vehicle sales, and exporting products that contain aluminum. Currently, China is the biggest aluminum consumer. It accounts for almost half of the global demand.

Alcoa (AA) is also offering its value-added products in Chinese markets. Currently, it’s a top holding of the SPDR S&P Metals and Mining ETF (XME). Century Aluminum (CENX) is another top holding of XME.

The world failed to solve the Chinese puzzle

China imported a quarter of its aluminum demand in 2000. China lacked the raw materials required for aluminum production. Aluminum producers in other regions expanded their capacity to cater to China’s growing demand.

China also started increasing its smelting capacity. The above chart shows the increase in China’s smelting capacity. Interestingly, while other aluminum producers are decreasing their smelting capacity, China is adding more capacity.

Please be aware that aluminum majors—like BHP Billiton (BHP) and Rio Tinto (RIO)—reduced their smelting capacity in the past few years.

Does China play the same role in global aluminum industry like it does in other commodities? We’ll discuss this more in the next part of this series.

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