Aluminium jumped on Friday (Nov 15) after China said that it would cancel a tax rebate that’s helped fuel a decades-long boom in exports and shielded an industry prone to overcapacity.
Futures in London jumped as much as 8.5 per cent following the announcement from the country’s Ministry of Finance. China’s aluminium industry historically has exported significant amounts of the metal as semi-finished products, which are used in value-added manufacturing or simply re-melted into commodity-grade shapes.
The shipments of the metal used in everything from beer cans to automobiles have been a trigger point for trade battles with the US and Europe in the past, with smelters shuttering across the globe due to excess supply, low prices and high energy costs.
“This could be seen as a strategic move in the context of trade tensions following Trump’s win in the US presidential elections,” said ING Bank commodity strategist Ewa Manthey.
China’s exports of semi-finished aluminium rose to 5.2 million tonnes in 2023, according to state researcher Beijing Antaike Information Development. That’s equivalent to about 7 per cent of the global aluminium market.
The tax rebate – applied across a range of aluminium products including pipes, plates, sheets and strips – was staggered up to 13 per cent. It was also removed for copper and lowered for some refined oil, solar, battery and non-metallic mineral products.
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Its removal, enforced from December, is likely to restrict flows from the country in the short term, analysts from Shanghai Metal Market said in a note. Still, the capacity for output growth elsewhere is limited, so Chinese producers have room to shift the tax cost to overseas buyers, they said.
“Given China’s position as the largest global producer of aluminium and alumina, the market appears to be pricing that these semi fabricated product flows need to continue, pushing up the LME (London Metal Exchange) price and potentially weighing on China prices,” Morgan Stanley strategist Amy Gower said in a note, adding that Mexico was the largest recipient of semi-finished Chinese aluminium last year.
Earlier last Friday, industrial metals had been boosted by retail sales figures that showed consumption growth nearly caught up to factory output in the world’s biggest importer of metals. Thus far, China had experienced a lopsided recovery, where household spending had trailed production, held back by sluggish sentiment among shoppers and the private sector.
Citigroup upgraded its growth forecast for China to 5 per cent for 2024, though it cautioned that tariff concerns would be “the main source of growth concern”.
Industrial metals had drifted lower since late-September and were on track for their seventh consecutive weekly fall. The greenback’s spike since Donald Trump’s victory, which makes commodities priced in the currency less appealing, added to the bearish sentiment. On Friday, the US dollar retreated before paring losses and trading close to multi-month highs. BLOOMBERG
