China’s aluminum exports – what was the fuss about?

It was a dramatic year for China’s aluminum import and export in 2015. In April of last year, China implemented zero tariff for certain aluminum products such as non alloy aluminum bars, rods, aluminum alloy bars, rods, low alkali refining aluminum alloy products. Such events raised huge criticism and fear around the world that China was getting ready to dump metal into the market.

In September 2015, there were rumors that China would remove the 15% tariff on primary aluminum. It caused another defensive response from around the world, although it was just a rumor.

The whole world is watching Chinese aluminum exports.

There are four categories in the Customs data – raw unalloyed metal, alloyed raw metal, semi-finished metal and scrap. In 2015 China exported 30,000t of raw primary aluminum, a reduction of 69% on 2014. For alloyed raw metal, China exported 535,000t, a drop of 6% over 2014. What were we worried about?

It’s true that China’s exports of semi-fabricated metal rose in 2015. Last year China exported 4.2 million tons, a rise of 14%. China’s imports of semis dropped to 472,000t from 500,000t the year before. Its imports of the other categories also fell. The net result is that across all categories of metal, China’s net exports were a shade under 2 million tons. That’s a big jump from 2014, which saw a net exports figure of 1.2 million tons.

These numbers still don’t tell the full story. For instance, the export of alloy wheels is almost entirely offset by the import of raw metal. Alloy wheel manufacturers do this so they can manage duties and taxes and reduce the burden on their cash flow. Metal enters the country, but exits as a finished product, not shown in any of these categories. We are counting the metal coming in but not going out.

Still, the numbers show that the concerns that arose about 9 months ago were misplaced. The items that had their export tariff reduced to zero are counted in raw metal and alloys, and both these categories went down last year, not up.

China’s aluminum exports in 2015 represent about 15% of its total primary metal output. In global terms, with total primary production of 57 million tons, China’s net exports of aluminum represent about 3-4% of the total raw metal market, though this number gets complicated by the supply of recycled scrap and the release of legacy metal from finance deals.

Having said all that, the outlook for 2016 is not great. We at AZ China believe metal exports will continue, partly driven by the spread between Shanghai and London prices. But not entirely driven by the spread. Last year we saw exports continue, admittedly at a lower level, even when the arbitrage opportunity was closed.

The fact that China’s exports represent such a large percentage of its total aluminum supply could be interpreted in different ways. Some might argue that exports will be the first to be cut if and when smelter capacity is cut. Others might argue that with the percentage being so big, exports are clearly an important market to the Chinese, and therefore we can expect the exports to continue.

If China does continue to export metal, we can probably expect to see more heat in the anti-dumping and WTO arena.

Meantime, China’s metal exports seem to be going into markets that are already depressed by economic conditions. Japan’s aluminum imports decreased to the lowest point in the past 6 years to 1.46 million tons. High inventory caused buyers to reduce or cancel orders for January-March shipment. With the global economy looking soft, and with the devaluation of the Chinese currency, we could see increased anger at Chinese exports.

What is the Chinese government’s view about all of this? Despite the talk of a supply-side reform, at a bureaucratic level the focus is on improving demand though developing new applications. From a priorities point of view, the question of exports is well down the list, whether the rest of the world cares or not.