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Why Chinese Aluminum Production Still Matters for Alcoa

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Chinese aluminum production

Like steel, aluminum has a problem with overcapacity and overproduction. However, unlike steel, where there’s overcapacity almost everywhere, aluminum overcapacity is mainly concentrated in China (FXI).

Except for China, global aluminum markets have been in a deficit, mainly due to capacity curtailments that producers such as Alcoa (AA) and Century Aluminum (CENX) have undertaken over the last few years.

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However, capacity curtailments by aluminum producers outside China (RIO) (NHYDY) haven’t had the desired effect. Chinese exports have risen steeply over the last few years. In 2015, China exported 4.8 million metric tons of unwrought aluminum. This brought the monthly average to ~400,000 metric tons.

Production curtailments

Toward of the end of 2015, facing flak from most of its trading partners, China announced that it would curtail its excess aluminum capacity. However, there were genuine concerns that China would actually cut its aluminum production.

However, there were some cutbacks in Chinese aluminum production in 2016. According to data released by the International Aluminum Institute, China produced 28.7 million metric tons of aluminum in the first 11 months of 2016, a YoY (year-over-year) fall of 1.3%.

Fewer exports

Lower Chinese aluminum production and better-than-expected demand due to the impact of government stimulus has been reflected in China’s aluminum exports. The country’s aluminum exports fell 3.1% YoY in the first 11 months of 2016.

Lower Chinese aluminum exports supported aluminum prices in 2016. However, if the country’s smelters restart their idled capacity in 2017, aluminum prices could come under pressure. In the next article, we’ll explore whether the downtrend in Chinese aluminum production could continue in 2017.

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