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Global Supply to Rise as China Eases Aluminum Export Taxes

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Nov. 20 2020, Updated 2:33 p.m. ET

China eases aluminum export taxes

The data from China has been at best disappointing since the start of this year. China’s 1Q GDP grew at the slowest pace since 2009, and manufacturing activity has also slowed down. To put its economy back on a growth track, China (EWT) has taken several measures, including the 100-basis-point cut in the reserve requirement ratio (or RRR) for all banks. In its latest move, China has removed the export duty on several products, including rods and strips made from primary aluminum.

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Aluminum exports

China’s unwrought aluminum exports registered the first year-over-year (or YoY) decline in March. Chinese aluminum exports have been on an uptrend, as the previous chart shows. As the news of China’s removal of export taxes came, aluminum premiums took a beating. Global markets are already reeling under a historically high level of aluminum exports from China.

Chinese exports have emerged as a big threat for aluminum producers like Noranda Aluminum (NOR), Alcoa (AA), and Glencore (GLNCY). Major producers like Rio Tinto (RIO) have curtailed their aluminum capacity to restore supply balance in the aluminum industry, which has seen overproduction for several years now.

Will exports rise?

China’s aluminum exports could rise somewhat from the current levels after the removal of export taxes. As per Alcoa, a lot of primary aluminum was already leaving Chinese borders disguised as semi-finished aluminum. This helped Chinese companies escape the export duty on primary aluminum.

With the removal of export taxes, aluminum exports could increase. But the fear of a sudden flood of Chinese aluminum looks unfounded. China lacks bauxite reserves, as well as access to cheap sources of energy. Moreover, the decline in aluminum prices and premiums could put high cost Chinese producers at a disadvantage.

However, investors should closely watch China aluminum exports in the coming months to see if there is any substantial increase in exports. You can also visit our aluminum page to learn about the recent developments in the aluminum industry.

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