Why Are Chinese Aluminum Exports Subdued in 2016?


Aug. 18 2016, Updated 8:05 a.m. ET

Chinese aluminum exports

China’s aluminum exports rose by 10% YoY (year-over-year) in 2015. Facing flak from most of its trading partners, China announced late last year that it would curtail its excess aluminum capacity. However, there were genuine concerns that China would actually cut its aluminum production.

Steel was an obvious example. China reiterated its commitment to cut its excess steel capacity for the last couple of years. However, Chinese steel exports continued to surge higher.

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Aluminum’s YTD production decline

According to data released by the International Aluminum Institute, China produced ~2.7 million metric tons of aluminum in June, a YoY decline of ~1.2%. Chinese aluminum production has fallen on a YoY basis in five out of the last six months. On a year-to-date basis, Chinese aluminum production has fallen by ~3.3% in 1H16, compared to the same period in 2015.

Lower Chinese aluminum production, coupled with better-than-expected demand due to the impact of government stimulus, is reflected in the country’s aluminum exports. Chinese aluminum exports fell by ~7% YoY in the first seven months of 2016.

How does a pickup in 2H16 look?

During its 2Q16 earnings call, Century Aluminum (CENX) expressed apprehension about growing Chinese supply in 2H16. The company sees restarts of idled Chinese smelters, combined with the incorporation of new capacity, as risks to global aluminum markets in 2H16.

Norsk Hydro (NHYDY) also pointed to possible restarts of some of the Chinese smelters in the coming months. During its 2Q16 earnings call, Norsk Hydro noted 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.

In the next part of this series, we’ll see how lower Chinese aluminum production impacts global inventories.

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