Lower Chinese Aluminum Exports Mean Little amid COVID-19

• China’s aluminum exports rose to record highs in 2018 and were at near-record levels last year as well. Globally, producers blame allegedly subsided Chinese aluminum exports for their woes.
• China’s aluminum exports have fallen sharply in the first three months of 2020. But it hasn’t helped aluminum prices much.

Chinese aluminum exports

Both steel and aluminum industries are reeling under the impact of Chinese overcapacity. China’s steel exports have fallen sharply from its 2015 highs amid pressure from trading partners. However, aluminum has been a different story. China’s unwrought aluminum exports totaled 5.7 million metric tons last year, only 1.1% below the record highs they hit in 2018. Almost all aluminum producers outside of China blame the country’s allegedly subsidized exports for depressing aluminum prices.

Exports fall in 2020

In the first three months of 2020, China’s aluminum exports have fallen 17.5% year-over-year to 1.2 million metric tons. The fall in China’s aluminum exports looks encouraging. However, the sharp year-over-year fall should be read with a pinch of salt. In January and March 2019, China’s unwrought aluminum exports hit record highs. So, the 17.5% fall is coming from a relatively high base. Also, they are still averaging roughly 400,000 metric tons per month even as demand has cratered amid lockdowns.

Meanwhile, despite the fall in Chinese exports, spot aluminum on the London Metals Exchange is still languishing below $1,500 per ton. The fall in aluminum prices has prompted several smelters including in China to curtail production. However, given the weakness in end-user demand, supply cuts would not have a major impact. Crude oil is a perfect example where the supply cuts announced by the OPEC+ failed to lift prices much.

Aluminum and automotive sector

The automotive sector is a major aluminum end consumer. Barring China, automotive companies in most leading economies have shut production amid the pandemic. Also, given the economic slowdown and the expected recession, global automotive sales in 2020 might be below last year’s levels.

We might need bigger cutbacks in aluminum production to see some sanity in aluminum markets. Incidentally, physical aluminum premiums that some producers like Alcoa see as a better indicator of market dynamics, have also plummeted. US Midwest physical premiums had surged in 2018 after President Trump imposed a 25% tariff on aluminum imports. However, as in steel, Trump’s Section 232 tariffs have failed to provide a lasting respite for US aluminum producers.