(Repeats March 23 item with no changes. The opinions expressed
here are those of the author, a columnist for Reuters)
* Graphic: Chinese aluminium volatility - tmsnrt.rs/2mvGXl9
By Andy Home
LONDON, March 23 The political heat is rising in
the aluminium market, with a trio of industry bodies calling on
the G20 to address global market imbalances resulting from
China's burgeoning output.
"China's state-sponsored support is contributing to an
unsustainable structural overcapacity that will impact growth
and contribute to heightened instability until it is addressed."
So wrote the heads of the U.S. Aluminum Association, its
cross-Atlantic peer European Aluminium and the Aluminium
Association of Canada in a March 15 open letter to the Group of
20 leading economies.
What they want is the sort of global forum created to
discuss steel overcapacity at last year's G20 summit.
The charges against China's leviathan aluminium sector are
largely the same as those against its equally huge steel
"Both the massive increase in production and the excess
capacity have had a downward effect on the prices, generating
significant economic and employment losses for our respective
producers and economies," the three associations said.
As with steel, trade tensions are rising with the United
States taking the lead. It has launched a broad complaint about
Chinese aluminium subsidies with the World Trade Organization,
while the Aluminum Association has filed a petition seeking
anti-dumping duties on aluminium foil.
All of which is somewhat ironic.
The price of aluminium traded on the London Metal Exchange
is up 14 percent this year and, at $1,930 a tonne, close to
This, of course, is also all about China, as the market
tries to price in the potential for significant anti-pollution
production curbs next winter.
"Heightened instability", it appears, works both ways.
Graphic on monthly Chinese aluminium production figures:
China has lifted its share of global primary aluminium
production from about 10 percent in 2000 to more than 50
percent, with the International Aluminium Institute's (IAI)
latest figures showing that China produced 54.4 percent of the
global total in February.
Give or take a percentage point or two, because even the
country's production numbers are unstable.
Annualised output dropped by 1.7 million tonnes in February
relative to January, if you believe the figures supplied to the
IAI by China's Nonferrous Metals Industry Association (CNIA).
It seems highly unlikely that such a huge amount of capacity
simply went offline last month.
The largest monthly swing in production in the rest of the
world over the past 10 years was a drop of 584,000 tonnes in
January 2012, a period of falling prices and multiple capacity
Seasoned aluminium hands have grown accustomed to this sort
of volatility in Chinese production figures, particularly around
the end of both calendar and lunar years, as well as the
occasional revisions to historic production figures.
CNIA shocked the market at the start of 2016 when it added
more than 4 million tonnes to the production ledger over the
It has just sprung another little surprise; this time
deducting 154,000 tonnes from 2015.
The official monthly figures, in other words, should carry a
strong health warning.
Production seems to be trending higher. Taking the
cumulative net change over the past four reported months
(November 2016 to February 2017), national run rates have
increased by about 925,000 tonnes annualised.
That would seem to tally with anecdotal reports of new
capacity coming online and restarts to take advantage of the
improving price environment.
FUTURE AND PRESENT INSTABILITY
The market is still digesting the implications of Beijing's
anti-pollution measures in regions around the Chinese capital
over the winter heating months from mid-November to mid-March.
A requirement that local aluminium smelters cut capacity by
30 percent puts at risk about 1.3 million tonnes of production,
with potential further hits from mandated closures of plants
producing other smelter inputs such as carbon anode and pet
Affected Chinese producers might be expected to run their
smelters as fast they can to compensate.
But Beijing's environmental crackdown is far more extensive
than the winter pollution measures and it is already affecting
Environmental inspection teams were in Henan province last
month and at least one operator, Linfeng Aluminum and Power,
closed some capacity as a result, according to specialist
Chinese aluminium consultancy AZ China.
Capacity closures across the metals production sector are
now increasingly happening pre-emptively ahead of inspections.
Moreover, environmental inspectors are returning at regular
intervals to check on progress. Shandong province will receive
its fourth environmental check next month, AZ China says.
Beijing is committed to sending inspection teams to every
province over the course of this year, including key aluminium
production hubs such as Xinjiang.
Chinese policymakers' search for "blue skies" has injected a
new level of uncertainty in the world's largest supplier of
TIME TO TALK
And that means a previously unknown degree of uncertainty in
a global aluminium supply chain that has historically not been
prone to the sort of disruptions that plague other industrial
metals, such as copper.
All this at a time when aluminium usage is growing fast as
the metal takes an ever-growing materials share in key sectors
such as transport.
Its success has in large part been predicated on a global
tendency to overproduce, particularly in China, and the
resulting relative low level of pricing volatility.
It's ironic that just as international pressure is rising on
China to rein in its aluminium smelters, the country is doing
precisely that in the form of an environmental clampdown.
But the three aluminium bodies are certainly right when they
refer to heightened instability.
China's dominance of global production has left the
aluminium market highly vulnerable to shifts in the country's
That needs to be addressed and the G20's steel forum is as
good a template as any.
If nothing else, it could start with getting a better
statistical picture of just how much China is producing.
(Editing by David Goodman)