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Chinese Aluminum Exports Fall on Lower Aluminum Prices

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Chinese aluminum exports

One of the major challenges facing aluminum producers including Alcoa (AA), Norsk Hydro (NHYDY), and Rio Tinto (RIO) is a surge in Chinese aluminum exports over the last year or so. In this part, we’ll see how much aluminum China exported in August.

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Exports fall

The above graph shows the recent trend in China’s unwrought aluminum exports. Unwrought aluminum is a basic form of aluminum. In August, Chinese aluminum exports fell ~12% % year-over-year (or YoY). This is the second consecutive month where Chinese aluminum exports have fallen YoY. Moreover, the August export figure is the lowest since June 2014.

Nonetheless, despite the fall in August, Chinese aluminum exports have risen 22% YoY in the first eight months of 2015.

According to Alcoa, Chinese companies export “fake-semis” to take advantage of China’s tax regime, which encourages the export of value-added aluminum products. China (MCHI) has a prohibitive 15% tax for the export of primary aluminum products. However, aluminum producers allege that Chinese companies are disguising primary aluminum as semifinished aluminum to evade the export taxes.

Why are exports falling?

In our previous series, we had noted that Chinese aluminum exports could fall in the coming months. Aluminum companies argue that at current prices, several Chinese producers are recording losses. Lower aluminum prices and physical premiums could subdue Chinese aluminum exporters.

Having said that, any major upside in aluminum prices currently looks dim. If aluminum prices rise, we might see an uptrend in Chinese aluminum exports—again putting pressure on aluminum prices.

While aluminum end consumers such as Coca-Cola (KO) would relish such a scenario, it could mean a prolonged weakness for primary aluminum producers like Century Aluminum (CENX).

In the next part, we’ll explore how the Chinese economy is currently doing.

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