Alcoa or Freeport: Who Benefits More from China’s Policies?



Chinese policies

China has been taking several measures to address its rising pollution levels—curtailing polluting steel, aluminum, and coal units. We’ve seen how these measures impact metal prices (GLNCY) (RIO). Chinese overproduction has been the global aluminum industry’s biggest woe in the last few years. Aluminum bulls lapped onto the lightweight metal this year anticipating winter month supply curtailments in China. Notably, aluminum markets’ sentiments have been reasonably bullish for most of 2017. The sentiments built on last year’s gains. Aluminum producers like Alcoa (AA) have also followed aluminum higher.

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China doesn’t control the global copper supply, at least on the mining level. China’s supply-side reforms don’t mean much for copper prices. We should remember that copper mining is concentrated in Latin America. While China is the biggest aluminum and steel exporter, it’s the largest copper importer. China is the biggest market for copper miners including Freeport-McMoRan (FCX).

Aluminum has benefited from China’s war against pollution. In the long term, vehicle electrification in China could be copper’s key demand driver. You can read How Freeport-McMoRan Benefits from Electric and Hybrid Vehicles to find out how copper miners can gain from the growing demand for electric vehicles (TSLA).

If China doesn’t deliver on its winter capacity cuts, aluminum could still come under pressure. We’ll look at China’s aluminum production later in this series. In the next part, let’s see how China’s aluminum demand indicators look this month.


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