LONDON, April 1 (Reuters) – China is increasing its aluminum exports to fill a growing supply gap in Western markets.

The country shipped 26,378 tonnes of primary aluminum in February, the highest monthly total since 2010. Imports slumped in the first two months of the year, turning China into a net exporter in February for the first time since November 2019.

This is a significant change in the structure of trade. China sucked in massive amounts of the primary metal in 2020 and 2021 as domestic production struggled to keep up with demand.

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The pendulum is now swinging in the opposite direction as high electricity prices reduce European production, pushing up both the London Metal Exchange (LME) price and physical premiums.

The Western supply crisis is also encouraging an acceleration of export flows of Chinese semi-finished products to Western markets.

Such “seedling” exports have always been the cause of much grief in the global aluminum industry, with Western countries imposing a series of anti-dumping duties to protect domestic markets.

However, right now, the rest of the world may need Chinese metal in any form.

Chinese imports and exports of primary aluminum


China has not exported much unwrought aluminum since imposing a 15% export tax in 2006.

The world’s biggest metal producer didn’t need to import much either until 2020, when domestic production began to stagnate as energy-hungry smelters cut output to meet energy efficiency targets. from Beijing.

China absorbed 1.065 million tons of primary aluminum from the rest of the world in 2020 and 1.580 million more last year.

This boom came to an abrupt end. Imports in January and February fell to 57,000 tonnes from 245,000 tonnes in the same period of 2021. February’s tally of 18,343 tonnes was the lowest since May 2020.

As prices on the LME rose faster than those on the Shanghai Futures Exchange, the arbitrage reversed against imports and in favor of exports.

Those in the primary metal have yet to overcome the headwind of the export tax and it is possible that the outflows will come from bonded warehouses located outside the Chinese tax regime.

Two shipments accounted for the bulk of February exports – 5,000 tonnes to Italy and 20,100 tonnes to Montenegro.

The Balkan country may seem like an unlikely destination for Chinese metal, but its only smelter – KAP – halted primary production late last year due to high electricity prices.

It likely uses imported metal to power its manufacturing lines for products that are still running.


The expansion of export-friendly arbitrage further stimulates shipments of Chinese aluminum products, which not only escape the primary metal tax, but benefit from a VAT refund.

Semi-trailer exports fell in 2019 and 2020, partly because China’s own demand was robust and partly because of the growing number of tariff barriers erected by other countries.

This trend reversed sharply last year, when product shipments increased by 18%, and accelerated this year with exports up 21% year-on-year in January and February.

Due to the tax allowance, aluminum is much more likely to leave China in this form than as raw primary metal.

Researchers at consultancy AZ Global, for example, estimate that Chinese exporters of plate and strip can currently make margins of around $1,000 per ton by shipping through the arbitrage window.

It is likely that semi-finished exports will continue to grow during the year.

Annualized change in aluminum production in China and the rest of the world


China’s aluminum sector appears to be collectively recovering from its power woes as the government eases its quarterly energy efficiency targets.

The country’s annualized production increased by 1.8 million tonnes in January and February, according to the International Aluminum Institute (IAI), with more on the way.

AZ Global estimates that 15 Chinese smelters with a collective capacity of 1.2 million tonnes began ramping up production in March, with a likely 16% increase in production.

This foundry resurgence will hit the domestic market at just the wrong time, however, as COVID-19 stalls demand for cramps.

Such mismatches between Chinese supply and demand have been resolved in the past by higher semi-finished product export flows, and there is no reason to think this year will be any different.

Negative reactions from other countries could be conspicuous by their absence this time around, however, given growing supply chain issues outside of China.


While China’s aluminum production is recovering, that of the rest of the world is falling.

European foundries were already struggling with soaring energy costs before Russia invaded Ukraine. Electricity prices have risen further since, with Germany’s Trimet the latest to confirm it was further cutting output at one of its sites.

Western Europe production fell nearly 10% in the first two months of this year, and annualized production rates fell below 3.0 million tonnes for the first time ever in February .

There is also a very big question mark over Russian sourcing, a key part of the European supply chain.

Rusal, the country’s aluminum giant, is not directly sanctioned but faces a growing number of secondary sanctions such as a ban on Australian exports of the alumina needed to run its smelters. Read more

It adds to the company’s raw materials headaches after the closure of its Ukrainian alumina refinery, and there are signs that its internal supply chains have backed off to its bauxite operations in Guinea. .

Figures from the IAI show that Eastern Europe’s aluminum output was flat in the first two months of the year, but for how long is the big unknown.

The status of Russian aluminum as a tradable commodity is equally uncertain given the increasing number of companies exiting Russian operations after the country’s “special military operation” in Ukraine.

European physical premiums continue to rise, with that of aluminum currently being paid at a record high of $555 per tonne versus LME cash.

US premiums are also plummeting as buyers are forced to compete with Europe for imports.

Both markets need more aluminum. China, it seems, will supply it.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by Jan Harvey

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.