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Aluminium prices above $1800 on China capacity cuts

Global primary aluminium production has reached 51.54 million tonnes. And China contributes more than half to the global aluminium production at 28.91 million tonnes in December 2016.

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China’s production had fallen drastically in the 2015 due to lower power costs and increasing aluminium supply. Lower power costs had also affected the pries of the metal. As the power cost contributes almost 30 percent to the total production cost. It was the period when the oil prices had fallen towards $26 per barrel last year. Oversupply in the Chinese aluminium industry and steadily rising exports have depressed the LME aluminium price in recent years.

Since the last quarter of 2016 we have witnessed a pickup in Chinese aluminium production which has raised questions from the other producers like US saying China encourages their domestic producers by giving subsidises and sell aluminium at even lower prices. US has filed a case with WTO (World Trade Organisation) accusing China of flooding world markets with under-priced aluminium. China subsidizes aluminium production by providing producers with cut-rate coal and electricity and loans. IT wants china not to only put an end to the subsidies but also to achieve commitments on environmental policies such as greenhouse gas reduction.

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Due to lower pries any US aluminium producers have shut down their operations. Almost 60 percent of the US production have been curtailed due to cheap aluminium being exported from China.

The Chinese Ministry of Environmental Protection (MEP) is consulting the Chinese aluminium industry on a proposed winter shutdown of 30% of aluminium smelting and 50% of alumina refining capacity in Shandong, Shanxi, Hebei and Henan from November to March. These provinces account 30% of global aluminium output representing 6 per cent of global capacity and push the market into a deficit of around 1.5 to 2.5m tonnes.

Any action from the both side would be noticed by the investors. Aluminium prices have risen by more than 8 percent trading above $1800 per tonne on LME. Higher US imports and lower aluminium production in China are both positive developments for aluminium market.

Categories: Aluminium Updates Commodity Market News International Commodity News

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CommTathya Team

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