8 Aug

Chinese Aluminum Exports: Are We Staring at a 2H16 Tsunami?

WRITTEN BY Mohit Oberoi, CFA

Chinese aluminum exports

One of the major challenges for the global aluminum industry has been the rise in Chinese aluminum exports. Aluminum producers such as Alcoa (AA) have been blaming their woes on Chinese aluminum exports.

Chinese Aluminum Exports: Are We Staring at a 2H16 Tsunami?

July exports

China exported 390,000 metric tons of unwrought aluminum in July. This represents a YoY (year-over-year) decline of 9.3%. Chinese aluminum exports have fallen ~7% YoY in the first seven months of 2016. Lower Chinese aluminum exports are supporting aluminum prices in 2016. Lower Chinese aluminum exports signal strong aluminum demand in China, coupled with some supply-side discipline from Chinese smelters.

What lies ahead?

Although Chinese production fell in 1H16, some aluminum producers expect the country’s aluminum supply to ramp up in 2H16. During its 2Q16 earnings call, Century Aluminum (CENX) expressed apprehension about growing Chinese supply in 2H16. The company sees restarts of idled Chinese smelters and the incorporation of new capacity as risks to global aluminum markets in 2H16.

According to Century Aluminum, Chinese aluminum production could increase in the high single digits in fiscal 2016. This would mean a sharp YoY increase in the second half of the year.

Norsk Hydro

Norsk Hydro (NHYDY) also pointed to possible restarts of some Chinese smelters (ACH) in the coming months. During its 2Q16 earnings call, NHYDY said that while it takes only a few days to curtail a smelter, it takes several months to restart it. The company expects some of the Chinese capacity to come back online in the second half of the year. Note that aluminum prices (DBB) could come under pressure if we see an increase in Chinese supply later this year.

As with aluminum exports, Chinese steel exports have spooked global markets. In the next part of this series, we’ll see how much steel China exported in July.

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