CHINESE aluminium output rose to an all-time high last year, climbing above the country’s capacity limit, while steel fell to a seven-year low, underscoring dramatically different prospects for the two most widely used metals.
Aluminium production increased 2.4 per cent to 45.02 million tonnes, having risen every year this decade, according to the statistics bureau on Monday (Jan 19). The figure for December was a record 3.87 million tonnes. Annual steel output declined 4.4 per cent to 961 million tonnes, falling below the one billion mark for the first time since 2019, with December at a two-year low of 68.2 million tonnes.
The energy transition that China leads relies heavily on aluminium, the lightweight metal used in renewables, power lines and electric car chassis. Steel is the backbone of construction, an industry dogged by the country’s yearslong property crisis. China is the world’s biggest producer of both metals, and both have been subject to output controls to varying degrees.
For aluminium, that’s taken the form of a 45-million-tonne capacity cap, imposed by the government in 2017 to limit structural oversupply, carbon emissions and electricity demand in the notoriously power-hungry sector. Steel has not been given formal targets, but policymakers have put the industry on notice that chronic overproduction needed to be addressed.
Aluminium prices are broadly set to benefit from the mismatch between rising demand and constraints on supply, although the picture is muddied by how much self-control the industry is able to exert. Goldman Sachs said in a note last week that discipline around the cap has mostly held, but “it is not a hard stop”.
The bank forecasts capacity will still rise by 900,000 tonnes till 2028. “This could result in a larger global aluminium surplus than expected, resulting in lower prices than forecast over the coming years,” it said.
Although the steel industry is paring output, it faces harder choices given the persistent shortfall in domestic demand. The government has pledged tougher rules on adding new capacity, but so far has stopped short of ordering the swingeing supply cuts necessary to correcting the imbalance.
According to the latest survey from the China Iron & Steel Association, members raised daily production to nearly two million tonnes in the first part of January from the previous period, although the figure is still 3.3 per cent behind last year’s pace. BLOOMBERG
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