China’s Aluminum Set to Worsen Glut as Export Taxes Removed

China, the world’s largest aluminum producer, may worsen a global glut of the metal as the government scrapped export duties for some products.

The removal of fees to ship certain aluminum products may encourage further exports from the country that accounts for about half the world’s production. Global prices may sink as the move encourages producers to shift China’s aluminum glut overseas, according to Bloomberg Intelligence.

“The policy will improve China’s aluminum market by encouraging exports and reducing domestic oversupply, but will increase global aluminum supply,” said Ma Kai, a Beijing-based analyst at China International Capital Corp. “Overseas aluminum premiums will be damped, while rising Chinese exports will also have a negative impact on LME aluminum prices.”

China continues to add aluminum capacity as smelters elsewhere struggle to cut enough supply to buoy prices. The nation’s exports of unwrought aluminum and aluminum products in the first quarter of 2015 rose 43 percent from a year earlier to 1.21 million metric tons, customs data show.

Aluminum for delivery in three months on the London Metal Exchange fell 1.8 percent to $1,773.50 a ton at 3:39 p.m. Prices are down 4.2 percent this year.

Aluminum Corp. of China Ltd., China’s largest mainland-listed aluminum smelter, advanced by the 10 percent daily limit in Shanghai to close at 9.55 yuan per share, the highest since August 2011. Hong Kong-listed shares gained as much as 4.8 percent.

Overseas Profits

State-owned smelters started lobbying the central government last year to scrap export duties as they looked to take advantage of higher prices overseas, Wang Chunhui, an aluminum analyst at SMM Information & Technology Co. in Shanghai.

The premium added to LME cash prices for immediate delivery of the metal to Rotterdam rose to a record $427 a ton in November, according to Metal Bulletin data. It has since fallen 58 percent to $180 a ton on Wednesday. Spot premiums on aluminum delivered to Japan, the benchmark in Asia, have dropped about 36 percent over the same period.

United Co. Rusal, the world’s biggest aluminum producer, said Wednesday its average sales price of aluminum fell 5.7 percent in the first quarter. A review of operations may lead to idling as much as 200,000 tons of its smelting output, the company said in a statement, without giving a timeframe for the shutdown. Shares fell 3.5 percent in Hong Kong.

China Stimulus

Alcoa Inc., the largest U.S. aluminum producer, forecast a global oversupply of the metal for 2015 and the slowest rate of growth in global consumption in three years. China will add more than 80 percent of new global capacity this year, according to the company’s data.

China will remove all export taxes on bars and rods of primary aluminum and aluminum-alloy starting May 1, the Ministry of Finance said on its website Thursday. The government also scrapped export fees on rare earth ores, as well as tungsten and molybdenum alloys. China started collecting export duties on aluminum rods and strips in 2007 and alloy products in 2008.

“The policy could be understood as a part of the recent measures to stimulate Chinese economy as domestic consumption remains weak this year,” CICC’s Ma said.

A Chinese manufacturing gauge fell to a 12-month low in April, suggesting government efforts to cushion a slowdown are yet to revive the nation’s factories. The country’s industrial production rose 5.6 percent in March from a year earlier, the weakest since November 2008, as the economy expanded at the slowest pace since 2009 last quarter.

Rebates

Exporters of some aluminum products, including those classified as profiles, slabs and tubes, receive rebates of 13 percent, which helped fueled the rise in Chinese exports, said Richard Lu, an analyst at AZ China Ltd., a Beijing-based consultant.

“In this case, it’s removing the tariff rather than giving a rebate,” Lu said. “The announcement will encourage some producers to export more now they don’t have the 5 percent to 15 percent tax, but I think it’s small relative to the bigger picture.”

— With assistance by Alfred Cang, and Martin Ritchie

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