2017 REVIEW: Chinese aluminium market’s reform gains, export pains

Supply-side reforms in China’s aluminium industry have removed more than 11 million tonnes per year of capacity while simultaneously a negative export arbitrage and anti-dumping measures squeezed the market in 2017.

China’s aluminium output fell by 16.8% on an annual comparison in November, making it the fifth consecutive month of decline, according to data published by the country’s National Bureau of Statistics (NBS).


Although accumulated aluminium production in the first 11 months of 2017 increased by 1.7% year on year, the rate of growth has slowed markedly.

Supply-side reform
Aluminium supply-side reform that started at the end of 2016 involved many government departments, including the Ministry of Industry and Information Technology (MIIT), Ministry of Environmental Protection (MEP), Development and Reform Commission (DRC) and provincial governments.

Government-initiated reforms have halted a total of 11.56 million tpy of aluminium capacity in China, including 5.37 million tpy of illegal capacity and 6.19 million tpy of non-compliant aluminium capacity, Wen Xianjun, the vice chairman of the China Nonferrous Metals Industry Association (CNIA), said in a speech in November.

In Shandong province alone, officials ordered 3.21 million tpy of aluminium capacity to be halted at the end of July, including 2.68 million tpy from Weiqiao Group and 530,000 tpy from Xinfa Group. The two top aluminium smelters reported the work as completed in early August.

The industry also made great efforts to undertake winter capacity cuts, which officially started on November 15 and are expected to end on March 15, 2018.
At the start of 2017, the Chinese environmental authority said it would cut 30% of operational aluminium smelting and alumina refining capacity in two municipalities and 26 cities in Shandong, Henan, Shanxi and Hebei provinces as part of a plan to reduce air pollution.

Since then, many provincial governments and companies involved in the operation have announced plans to reduce their smelting and refining capacity during the winter.

Negative export arbitrage, anti-dumping duties
Meanwhile, China’s total exports of unwrought aluminium and aluminium products for the first 11 months of 2017 stood at 4.35 million tonnes, an increase of 3.7% from a year earlier.

Yet the hefty tax that Chinese participants are required to pay on exports of aluminium ingots as well as the increased scrutiny that China-origin shipments face amid trade cases in the United States are likely to affect exports in 2018, according to market participants.

This is despite high stocks in China’s domestic market and supply tightness in the rest of the world.


The SHFE-LME arbitrage ratio, in a range of 6.97-7.59 until late in 2017, has not been suitable for aluminium exports.

“The arbitrage ratio has gone down but [it is still] not low enough at present,” a Shanghai trader said.

When the arbitrage ratio is around 6.5 or below, it can encourage exports, Metal Bulletin heard.

Aluminium-importing countries worked harder on anti-dumping measures in 2017. In December 12, the US, the European Union and Japan said in a joint statement that they would work within the World Trade Organization (WTO) and other multilateral groups to eliminate unfair competitive conditions caused by subsidies, state-owned enterprises, “forced” technology transfer and local content requirements.

The statement did not mention any countries but many in the market believe they are targeting China.

In April, US President Donald Trump had signed an executive order launching a self-initiated Section 232 investigation into imports of products including aluminium.

In October, the US Department of Commerce made an affirmative preliminary determination in its investigation into imports of Chinese aluminium foil into the US, levying heavy anti-dumping duties.

And the EU Council of Ministers has now also formally approved new anti-dumping rules. This may help the EU impose anti-dumping duties against Chinese dumped metal exports, clearing the way for the new system to come into force by December 20.

Chinese government and industry organizations, such as the Trade Remedy and Investigation Bureau and the CNIA, have responded by offering advice on how to face trade conflicts.

For example, Chinese officials have questioned the veracity of the US’s Section 232 probe into the national security issues related to a reliance on aluminium imports. In a statement late in May, a spokesman with the CNIA expressed his “deep concern” over the “fairness” of the investigation.

Chinese enterprises that are active in exploring the global market have also faced problems overseas.

In the middle of November, Zhongwang USA’s proposed acquisition of Aleris Corp, which Metal Bulletin first reported in August 2016, has expired and will not proceed, with both sides citing regulatory scrutiny of the deal as insurmountable.

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