Chinese dumping aluminium surplus in world markets
Business Standard reported that the world aluminium industry presents two highly contrasting constructs. On the one hand are US producers such as Alcoa and Century Aluminium, majority owned by debt-ridden commodity conglomerate Glencore. They all are committed to production discipline by either temporarily switching off smelters or scrapping potlines. On the other, there is Aluminium Corporation of China, popularly known as Chalco, going back on its earlier programme to shut its smelter at Liancheng in northern Gansu province after the local government upped a discount in power rates to avoid job losses.
Chalco's action falls in an established pattern of Chinese provinces enabling production of all metals to be sustained by offering subsidies to plants otherwise ripe for closure. Thanks to falling power bills, courtesy munificence of state agencies and also due to cheaper alumina prices, China's cost of making the white metal, which finds application in a wide range of products from cans to automobiles to aircraft, is at a five-year low.
The biggest cost element in smelting aluminium is electricity, where state subsidy is coming to the aid of Chinese aluminium makers to leave a good portion of their production in the world market.
According to Morgan Stanley, China will end 2015 with aluminium production up 11 per cent to around 30 million tonnes. This is happening when the country's economy continues to slow with annual rise in gross domestic product down to 6.9 per cent in the third quarter.
A local industry official says "Chinese growth slipping will translate into flat local demand for aluminium. The pressure will, therefore, further mount on China to sell more and more aluminium in the world market supported by large subsidy dollops."
Responding to a fall in aluminium prices by as much as 27 per cent in the past year, Alcoa is to cut aluminium capacity by 503,000 mt and alumina refining capacity by 1.2 mt by 2015-end. Century will soon switch off one of the three potlines at its Kentucky smelter. The problem, however, is attempts made by producers outside China to restrict industry capacity and production are largely negated by large subsidised exports by China.
According to customs data, Chinese aluminium exports in the first nine months of 2015 were 18 per cent ahead from a year ago. A report by Bank of America Merril Lynch says nearly half the world's smelters have turned unprofitable with aluminium prices trading at six year lows. "In our view, the recent dynamic is testament to the ongoing challenging fundamental backdrop. This has perhaps been most visible in the reluctance of China's aluminium producers to curtail output," says the report. As oversupply persists in a subdued demand situation, the light metal for delivery in three months is down to around $1,500 a tonne. To add to the industry's agony, premiums charged for immediate delivery in the US, Europe and Japan are sharply squeezed largely in response to London Metal Exchange introducing rules to streamline warehouse inventory and delivery management.
Source : Business Standard