China’s ‘looser’ aluminium winter cuts has limited effect after 7.4% increase in total output in 2018

China produced 35.8 million tonnes of aluminium in 2018, up 7.4% year on year, according to data released by China’s Statistics Bureau on Monday January 21, suggesting the annual winter production cuts did little to slow output in the country.

Chinese output in December 2018 reached 3.05 million tonnes, marking an 11.3% increase from the same period of last year.

Market producers said the only moderate restriction on winter production might be the result of the Chinese government’s loose winter production policy for 2018. Winter aluminium production cuts were introduced in November 2017 to curb pollution at a time when coal-powered heating increases.

Last year was the first time China allowed local governments decide on the level by which aluminium producers would cut their output, with some major producers exempt from curtailments.

“From this data, we are doubting [the effectiveness of China’s] winter cut policy due to its limited impact on reducing aluminium output in China,” an aluminium trader in Shanghai said.

Fastmarkets’ aluminium P1020 premiums for both bonded warehouses in Shanghai and cif Shanghai were at $95-105 per tonne on Tuesday January 15, unchanged since March 2018 due to a firmly shut arbitrage window and ample stocks in China.

The Shanghai Futures Exchange active aluminium contract settled at 13,530 yuan ($1,995.88) per tonne at the end of Monday trading, down 5 yuan from last Friday’s close and down 6% from 14,390 yuan per tonne at the same time last year.

It is also difficult to assess the effect of the winter cut policy on aluminium prices this year, the same trader said pointing to China’s fiscal stimulus plans for 2019 as possibly boosting aluminium demand and pricing.

“The price is hard to predict now as China is aiming to adopt many forceful stimulus measures to keep its GDP increase at around 6.0-6.5% in 2019,” he added.

Fastmarkets MB aluminium analyst Cao Yang supported the view that China’s fiscal policy is likely to shore up the aluminium market this year:

“Looking at the global aluminium outlook in 2019, we are still positive on its price as there was still a global aluminium deficit…Besides, Beijing has also cut taxes and fees, and stepped up infrastructure investment to shore up the economy. This year, China is expected to step up fiscal expenditure and implement larger tax and fee cuts. This together with the fact that Beijing has capped future smelter capacity growth should translate into a healthier aluminium market,” Cao said on Monday.

Chinese GDP growth met the market prediction of 6.4% year on year in the fourth quarter of 2018, down from 6.5% growth in previous quarter, according to its Statistics Bureau on Monday. Its economy expanded by 6.6% in the whole year of 2018, the weakest pace since 1990.