China’s aluminum output advanced to a record, underscoring the threat to global producers as low-cost capacity expands in the world’s biggest supplier.
The country made 2.8 million metric tons of aluminum in June, 18 percent more than a year earlier, National Bureau of Statistics data show. Production climbed 12 percent in the first half to 15.61 million tons.
New supply from China is forcing smelters elsewhere to cut output as exports surge and prices slump. Shipments from the country rose to the highest this year in June, boosting a global surplus of the raw material used in everything from cans and cars to aircraft and sending rates to the lowest since 2009.
“The Chinese market is in a fundamental surplus and that’s growing,” said Ivan Szpakowski, commodities strategist at Citigroup Inc. in Hong Kong, by phone. “It’s driven by new capacity additions and the lack of any production restraint.”
China will add about 3.9 million tons of aluminum capacity this year, according to Bloomberg Intelligence, as the industry benefits from lower power costs, falling raw material prices, and an export system that gives tax discounts on some shipments.
The all-in price of aluminum, including regional premiums paid on top of global prices, has fallen about 21 percent in Asia this year, according to data from the London Metal Exchange and Metal Bulletin.
Producers including United Co. Rusal, the world’s biggest, and Alcoa Inc., the largest in the U.S., are considering more cuts as China’s exports reduce the benefit from a recovery in demand as economies improve. The aluminum situation looks similar to the steel market, where surging exports from the biggest producer have curbed international prices for years.
“I don’t think it’s a low blow to say that China is actually encouraging exports of aluminum and steel,” according to Paul Adkins, managing director of consultancy AZ China. “The more the western producers cut and close smelters, the more China will be able to sell into that space.”
Chinese exports of unwrought aluminum and products rose 9 percent in June from a month earlier to 450,000 tons, the most since December, data from the General Administration of Customs showed on Monday. Sales increased 35 percent in the first half from a year earlier to 2.5 million tons.
The expansion in China is slowing, according to Goldman Sachs Group Inc. analysts including Yan Yan and Julian Zhu in a report dated July 13. The bank predicts a dramatic shrinkage in capacity additions in 2016 and a recovery in prices as the property market stabilizes.
Aluminum rates in China are dropping for the sixth straight year and were at 12,495 yuan ($2,012) a ton on Friday, about 50 percent below their high in 2006.
Global supply will exceed demand by 762,000 tons in 2015, according to Alcoa’s estimates. That’s more than an April prediction of 326,000 tons.
Premiums paid on top of the LME price, a major component of consumer costs, have also slumped this year. Buyers in Japan agreed to pay fees of $90 a ton for this quarter, the lowest in six years. Aluminum for three-month delivery on the London Metal Exchange fell 7.9 percent this year to $1,707 a ton.