Alcoa Investors: What’s Keeping Chinese Aluminum Exports Subdued?



Chinese aluminum exports

One of the major challenges for the global aluminum industry has been the rise in Chinese aluminum exports. Producers such as Alcoa (AA) and Century Aluminum (CENX) blamed higher Chinese aluminum exports for lower aluminum prices.

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Exports subdued

China exported 380,000 metric tons of unwrought aluminum in November 2016. That represents a yearly fall of 14.8%. Prior to November, China’s unwrought aluminum exports had risen on a year-over-year basis for four consecutive months.

During their 2Q16 earnings calls, Century Aluminum and Norsk Hydro (NHYDY) expressed concerns over higher Chinese supply in the second half of the year. There were concerns that some of the idled capacity in China could come back online.

Key drivers

Restarts seem to be less than what the markets were expecting earlier. According to Rusal, from July 2015 to August 2016, there was a net increase of only 0.90 million metric tons in China’s smelting capacity. Rusal sees limited additional restarts since aluminum’s cost of production has risen due to higher alumina and coal prices (WLB) (TCK).

We should remember that higher raw material prices have raised production costs for Chinese smelters, some of which rely on imported alumina and coal. There have also been logistical issues in aluminum transportation that have hit Chinese aluminum smelters.

For now, rising raw material prices and logistical issues in China have provided support to aluminum prices. However, with massive existing overcapacity and the incorporation of fresh smelting capacity, Chinese supply could be a serious headwind for Alcoa and aluminum prices. To find out more, read Aluminum Supply: Chronic Overcapacity Is Here to Stay.

In the next part, we’ll look at China’s November copper imports.


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