Chinese aluminum exports
Previously, we noted that the depreciation of the yuan could benefit Chinese aluminum producers. However, the falling aluminum prices seem to have taken their toll on Chinese aluminum exports.
Chinese aluminum exports fell in July
The above graph shows the recent trend in China’s unwrought aluminum exports. Unwrought aluminum is a basic form of aluminum. In July, Chinese (MCHI) aluminum exports fell more than 5% year-over-year, or YoY. Apparently, this is only the second time in last two years that Chinese aluminum exports have registered a yearly decline. Chinese aluminum exports had earlier fallen ~2.5% YoY in March 2015. However, the trend was short-lived, as exports rose 30% YoY in the next month.
Despite the fall in July, Chinese aluminum exports have risen 28% YoY in the first seven months of 2015.
Negative for aluminum producers
Chinese aluminum exports have been one of the major challenges for aluminum producers including Alcoa (AA) and Rio Tinto (RIO). Aluminum companies argue that at current prices several Chinese producers are recording losses. If aluminum prices continue to stay at lower levels, we might see Chinese aluminum exports fall further in the coming months.
Meanwhile, lower aluminum prices have hit the 2Q15 earnings of aluminum producers including Alcoa. Together, Alcoa and Allegheny Technology (ATI) form ~8% of the SPDR S&P Metals and Mining ETF (XME).
Things don’t look good currently, and the 3Q15 earnings of aluminum producers could also be negatively impacted. Aluminum prices have been trading near their six-year lows over the last few weeks. In the coming parts, we’ll analyze the outlook for aluminum prices. We’ll also explore how physical aluminum premiums are shaping up.
Let’s begin by looking at the recent trend in aluminum prices in the next part of this series.