One of the major challenges for the global aluminum industry has been the rise in China’s aluminum exports. Aluminum producers such as Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHYDY) have long been blaming Chinese aluminum exports for their woes. China’s aluminum exports rose by 10% YoY (year-over-year) in 2015. Late last year, China announced that it would curtail its excess aluminum capacity. Let’s see if the cuts have impacted its aluminum exports.
China exported 420,000 metric tons of unwrought aluminum in March—a YoY increase of 17.1%. Prior to this, Chinese aluminum exports dipped sharply in January and February, falling 12.2% and 33.8% YoY, respectively. Thanks to fewer exports in those two months, Chinese aluminum exports fell 11% YoY in 1Q16.
Negative for aluminum markets
The steep rise in China’s March aluminum exports is a negative for aluminum markets. China’s March aluminum exports exemplify the issue plaguing global aluminum markets. A massive overcapacity comes online whenever aluminum prices rise, and that overcapacity is not limited to China. Furthermore, new capacity is being commissioned, especially in the Middle East. Last month, while analyzing China’s February trade data, we noted that Chinese aluminum exports might rise in March, as aluminum prices had risen sharply.
Meanwhile, the United States is investigating whether aluminum imports are harming the domestic industry. Some analysts expect that US aluminum companies could bounce back if duties are exposed on aluminum imports, as seen when US steel stocks rallied steeply after duties were imposed on Chinese steel products. However, aluminum’s dynamics are a bit different, as we’ll explore in the next part of the series.
To get a diversified exposure to the materials sector, you could consider the Materials Select Sector SPDR ETF (XLB). Metal producers currently form ~11% of XLB’s portfolio. Together, Alcoa and Ball (BLL) form 4.6% of XLB’s portfolio.