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China’s Aluminum Exports Decline in March, Positive for Alcoa

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Apr. 17 2015, Updated 1:07 p.m. ET

China’s aluminum exports

China Customs recently released trade data for March. China’s exports registered a year-over-year decline of 15% in March. A decline in Chinese exports is negative for the global economy since it points to a global demand slowdown.

However, aluminum companies like Alcoa (AA) and Noranda Aluminum (NOR) have a reason to cheer about China’s (FXI) March trade data. Currently, Alcoa forms 2.65% of the Materials Select Sector SPDR ETF (XLB).

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Exports down

The above chart shows the latest trend in unwrought aluminum exports from China. The data are released by China Customs on a monthly basis. Please note that unwrought aluminum is a basic form of aluminum. China’s unwrought aluminum exports in March were down ~3% on a year-over-year basis. In February, aluminum exports increased by more than 150%.

Apparently, this is the first instance in more than a year where China’s aluminum exports have registered a year-over-year decline. Rising aluminum exports from China pose a threat to the global supply balance. Apart from China, all other major aluminum producers have curtailed aluminum capacity.

A decline in Chinese aluminum exports is positive for aluminum producers like BHP Billiton (BHP) and Rio Tinto (RIO). However, investors should closely watch China’s aluminum exports in the coming months in order to understand the trend.

Chinese government levies duty on exports

The Chinese government levies a hefty 15% duty on exports of primary aluminum products. According to Alcoa, a lot of primary aluminum leaves Chinese borders disguised as semi-finished aluminum. This helps Chinese companies escape the export duty on primary aluminum.

Aluminum inventories with the London Metal Exchange registered warehouses are another source of aluminum’s supply. In the next part, we’ll see how aluminum inventories are shaping up.

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