A lot of people have asked me what to make of Alcoa President Klaus Kleinfeld’s comments in his recent analysts’ call. You may recall he said that he was “relatively optimistic” that the Chinese Government would crack down on the export of so-called “fake semis”. Mr Kleinfeld said he had visited China and met with high-ranking officials and was confident that they are looking into the problem.
I am sure that this is an accurate assessment, and I have the greatest empathy for Alcoa’s situation. But when I heard this, I couldn’t help but be reminded that the same conversation took place between America’s Secretary of State John Kerry and Beijing over the matter of internet security and hacking of sensitive US data. The Chinese nodded their heads then too.
We don’t have a lot of circumstantial evidence with which to assess what China will do about exports of metal. One sector where a similar pattern has been unfolding is in the steel sector. China exported something like 100 million tonnes of steel in 2014. When the international steel industry complained, China tweaked the rules regarding boron levels in steel. According to Reuters Correspondent Clyde Russell today, to the end of June 2015 China had exported 52.4 million tonnes of steel. That’s not an encouraging sign for the international aluminium community.
My personal belief is that market forces will finally be the driver that rein in exports. Sooner or later we will start to see capacity cuts. That will bring the price up, and close the arbitrage window with London, making it less attractive for pure speculative plays.
Thanks to Bild magazine for the feature photo of Mr Kleinfeld.
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