The Russian invasion of Ukraine has upended the global aluminium market,
transforming China into an exporter as supplies of the energy-hungry metal flow to
Europe where it fetches higher prices.The white metal, used in a variety of industries
starting from cans and kitchen utensils to automotive to aeroplane parts, had been rising
since the beginning of the Chinese economic recovery from Covid-19 in the second
half of 2020. Last year’s severe power crunch in China further boosted aluminium as
smelters curbed production.
China’s journey from the world’s largest metals buyer to largest supplier has alarmed
the global community which has been keeping a close watch on Beijing’s future moves.
Known for shrewd diplomatic moves, China will most likely exploit the situation to its
advantage. The journey, comprised of surprises, has not been liked by the west.
The latest data from China’s National Bureau of Statistics highlighted that the
aluminium production has recorded high growth in April aloneafter curbs on power
production eased and smellers were allowed to expand operations. The latest data
showed that the primary aluminium output in the world’s top producer and consumer
of the metal stood at 3.36 million tonnes, up 0.3% on the same month a year ago, which
had been a monthly high. The aluminium production was 112,000 tonnes daily which
was more from the daily average of 106,453 tonnes during March, and also a record
high. For the first four months of the year, China made 13.01 million tonnes of
aluminium in the first four months which is down 0.2% from the same period a year
earlier.
Prices of the metal has zoomed because of sanctions on Russia and security issues at
the Black Sea. The drop in London Metal Exchange “on warrant” stocks to a record
low reflected a tightness in the non-Chinese market, stated ING Think, the financial
and economic analysis wing of Dutch multinational financial services firm ING.
Now that China is in a strong position, it would eventually drive prices to a balance in
the coming months, feel financial consultancy firms.
According to US research agency Fitch Solutions Country Risk and Industrial
Research (FSCRIR), a Fitch unit, aluminium which had rallied smartly in the first
quarter this year following the Russia-Ukraine conflict and concerns over supplies, had
dropped to pre-conflict levels in view of the Chinese Covid lockdowns and weakening
demand.
According to ING Think, Chinese supply growth has begun to exceed demand which
has been soft due to Covid lockdowns in China. However, the Dutch multinational
firm’s financial and economic analysis wing said aluminium production had recovered
faster than expected. It also pointed out the data showing Chinese exports of primary
aluminium and aluminium products at 5.97 lakh tonnes, outstripping 1.97 lakh tonnes
of imports.
Fitch Solutions said it forecasts aluminium prices to average at $3,000 a tonne this year
as the market is expected to stabilise in the second half of the year. Prices are expected
to drop further and average at $2,800 next year.
China’s journey from importer to exporter
China which is the world’s largest aluminium producer, had started importing metal in
a big way in 2020 as domestic smelters curtailed output in what turned out to be a
rolling power crunch. Reuters reported that Imports of primary unwrought metal
totalled 1.1 million tonnes in 2020 and 1.6 million tonnes in 2021, China’s sudden
hunger for aluminium transforming the global market landscape. European production
has been badly hit by high power pricing with multiple smelters reducing run rates,
while a major question mark hangs over the future of Russian supply.For the first four
months of the year, China made 13.01 million tonnes of aluminium, down 0.2% from
the same period a year earlier.
A close look at developments in recent months explain the trade pattern in China’s
aluminium export story. The latest trade patterns flipped again in the first quarter of
2022, China turning a net exporter in both February and March as imports collapsed
and metal started leaving for Europe. Russia’s invasion of Ukraine helped China export
more Aluminium and make money.
According to industry consultancy CRU, China’s exports of aluminium had likely
peaked in the wake of a series of trade protection moves in key markets around the
world but the country is now shipping higher value-added products overseas.
Available reports suggested that Chinasaw exports of unwrought aluminium and
products fall for a second straight year in 2020 to 4.86 million tonnes, as a coronavirusdriven knock to demand for Chinese metal exacerbated the impact of a flurry of antidumping tariffs imposed since 2017.High Chinese exports of metals such as aluminium
and steel in recent years have spurred criticism by both the United States and Europe.
This was one reason for the imposition of tariffs by Washington.Last month, China
increased its rebate on value added tax (VAT) for exports of semi-fabricated
aluminium or semis to 16.
However, the proliferation of shipments of Chinese aluminium, lead and zinc to
Europe, Turkey and even the United States suggests a new dynamic may be evolving,
one where China turns from the world’s largest metals buyer to largest supplier. The
development which is not liked by the West.