(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, May 23 China exported 380,000 tonnes of
aluminium in semi-fabricated form in April.
It was the highest monthly total since November 2015 and
brings the year-to-date tally to 1.33 million tonnes, up two
percent on the same period of 2016.
That may not sound like a lot of extra metal.
But any increase risks fanning the flames of the trade
tensions around China's impact on the rest of the aluminium
The United States has taken the lead in pushing back against
growing Chinese dominance.
The Obama administration initiated a formal complaint with
the World Trade Organization and the successor
Trump administration has followed up with a Section 232(b)
investigation into the national security implications of global
Moreover, there is plenty of devil in the detail of China's
Some sharp shifts in product mix are emerging which may mean
a bigger impact on the global supply chain than suggested by the
Graphic on China's exports of aluminium "semis":
Full breakdown of China's aluminium trade:
PRODUCTION UP, EXPORTS UP
Chinese policy makers are targeting their giant aluminium
sector for supply-side reform this year.
A national audit will weed out those that have failed to
tick all the legal boxes, while those in the region surrounding
Beijing will be forced to cut production by at least 30 percent
over the next winter heating season starting November.
Environmental urgency to tackle what is a massive user of
coal-fired power is overlaid with diplomatic urgency to preempt
a trade showdown.
Uncertainty over future production in China, which produces
more than half the world's aluminium, is the single most
important reason why the London metal price is up 14.5
percent this year, outstripping all the other major industrial
But all that lies ahead and right now, it seems, China's
aluminium production machine is cranking back up again.
By how much is a little difficult to say given the
volatility in the monthly figures, which have implausibly shown
annualised output gyrating in a three-million-tonne range over
the last couple of months.
Cumulative output so far this year has risen by 12.5 percent
to 11 million tonnes. Last year's low base may serve to
overstate that growth rate, but, on the other hand, there are
plenty of analysts who think that the current figures are
running too low anyway.
The best that can be said is that production is definitely
trending higher. And so too are exports of semi-manufactured
Graphic on China's exports by major product code:
The superficially modest rise in exports so far this year is
masking a dramatic change in the sort of product that is leaving
Exports of bars, rods and profiles (international trade code
7604) have slumped by 34 percent, or 132,000 tonnes, in the
first four months of the year.
Exports of plate, sheet and strip (code 7606), by contrast,
have risen by 20 percent, or 105,000 tonnes. Those of foil are
up by 14 percent, or 47,000 tonnes.
The latter may well reflect an acceleration in shipments
ahead of a U.S. International Trade Commission anti-dumping
finding, another salvo in the country's trade barrage against
China's aluminium sector.
But why has there been such a sharp switch between Code 7604
and 7606, the two largest components of China's "semis" exports
in both 2015 and 2016?
The answer lies in part with one specific trade partner.
China's exports of 7604 "semis" to Vietnam mushroomed from
just over 6,000 tonnes in 2012 and 2013 to 463,000 tonnes in
2015 and 510,000 tonnes in 2016, according to International
Trade Centre figures.
The material didn't stay in Vietnam.
A significant part was found in Mexico last year, since when
both media and market have been tracking its return to Vietnam.
Google Earth, it seems, is now an essential part of every
aluminium trader's toolkit.
The market calls this moveable aluminium mountain "fake
semis", aluminium which has been transformed just enough to
escape China's export tax on unwrought metal and instead qualify
for a VAT tax rebate.
The official jury is out, although Vietnamese officials are
apparently curious as to why the obscure port of Vung Tao is now
the world's aluminium capital.
"Following instructions from Deputy Prime Minister Trinh
Dinh Dung, officials from the trade, the finance and the
planning and investment ministries will verify the origin and
purpose of the aluminum stock," reported the local "VN Express"
newspaper on May 4, 2017.
From the depths of this murky story, however, shine a couple
of clear statistical takeaways.
China's total exports of "semis" were 4.2 and 4.0 million
tonnes in 2015 and 2016 respectively.
It now seems a significant part of this, one million tonnes
but maybe a lot more, never went anywhere near the global supply
chain. It may have been on a world tour but it is still
Secondly, the sharp drop in Code 7604 exports this year
suggests the first leg of that tour has been wound down.
It is also, though, masking the increase in other forms of
product, particularly plate, sheet and strip.
This may be an ominous trend for producers in the rest of
the world if, unlike the alleged "fake semis", the material is
fit to displace western product outside of China.
It may have, in other words, greater market impact.
There should be no doubting Beijing's zeal when it comes to
reforming its aluminium sector.
It will result in closures, the only question is how much.
On that subject the debate rages hot around the aluminium
But unless Beijing can work out how to stem the rising tide
of "semis" into the world market, there will be no relief from
the multiple trade pressures.
Its problem is that it has spent years micro-managing its
aluminium sector down the value-added product chain.
This is a system now designed to produce aluminium and
convert that metal into "semis". The more aluminium produced,
the more "semis" produced and the greater the overspill of
surplus into world markets.
Even if capacity is closed later this year, other smelters
will most likely simply lift output in compensation.
This is the message from China's steel sector, currently
producing at record levels despite, or rather because of, the
success in cutting non-economic capacity.
Years of excess cannot be rectified overnight.
And with Chinese production and exports still rising, the
latter more dramatically than the headlines suggest, the already
simmering aluminium trade war is only going to get hotter.
(Editing by Louise Heavens)