West plugs defences as China cranks up aluminium output

FE Team | Published: September 05, 2024 22:48:29

LONDON, Sept 5 (Reuters): China's primary aluminium smelters are producing record amounts of metal and the domestic market surplus is spilling out of the country in the form of semi-manufactured products.
This sudden acceleration in "semis" exports is rekindling the flames of a long-simmering trade conflict.
Western countries have repeatedly accused China of unfairly subsidising its aluminium and steel sectors, claiming the country's excess capacity is swamping global markets.
The World Trade Organization (WTO) said last month that it was unable to get a clear picture of China's financial support for key industrial sectors due to an "overall lack of transparency".
With no means of negotiating a multilateral remedy, countries are increasingly turning to unilateral tariffs to protect themselves from the renewed Chinese flood.
China's production of primary aluminium hit a fresh monthly peak of 3.690 million metric tons in July, according to the International Aluminium Institute.
Output rose 4.9 per cent on a year-on-year basis in the first seven months of 2024 and the collective run-rate reached an annualised 43.5 million tons in July.
The country's production rate is closing in on the government's 45-million-ton annual capacity cap now that increased rainfall in the hydro-rich province of Yunnan has enabled smelters to restart capacity that was idled earlier this year.
The problem is that China's domestic demand hasn't been strong enough to absorb this much aluminium.
A report from the Labor Department showed job openings fell to a 3-1/2-year low in July, likely strengthening the case for an interest rate cut from the Federal Reserve after its policy meeting later this month.
Although demand remains resilient in new energy applications such as solar panels and electric vehicles, domestic appetite is being constrained by weakness in both the construction and broader manufacturing sectors.
The surplus aluminium is being exported in the form of semi-manufactured products such as plate, rods, tubes and foil.
Semi-manufactured product exports fell 14.9 per cent last year but rebounded by a similar margin to almost 3.0 million tons in the first half of 2024, according to LSEG trade data. Outbound shipments of 566,400 tons in July were the highest monthly tally since July 2022. The U.S. has led the push-back against Chinese exports of both aluminium and steel in recent years.