 "China's aluminium output data fail to carry conviction")
A line in a smelter with 300 pots once decommissioned will take around six months to be brought back into production stream. It is in this context that the recent set of aluminium production figures submitted by China Nonferrous Metals Industry Association (CNMIA) to the International Aluminium Institute (IAI) has led industry constituents in the rest of the world to believe the country, which alone accounted for 32 million tonnes (mt) of the 2015 world output of 58 mt is once again at the game of data obfuscation. But, then, much of the Chinese economic data remains suspect. Assuming that the Chinese submission to IAI that its aluminium production between December and February was down by an annualised 6.6 mt was correct, it would then be inconceivable that production could pick up by 5.2 mt in March and April, on a yearly basis. A recent Reuters report quoting an analyst with consultancy firm AZ China said the month-on-month jump in production underlining CNMIA submission to IAI amounted to "10 smelters running at full speed on March 1 after being idle on February 29".
Whether it is aluminium or steel, the first quarter of a year has traditionally seen significant changes in Chinese production and prices that factor in inventories and local and global demand. But this year's aluminium output variance is just wildly unreasonable. Like any other Chinese riddle, this one about aluminium production figures is difficult to unravel. More so because CNMIA made pledges, more than once, of taking 4.6 mt tonne of smelting capacity offline in the face of a fall in aluminium rates on the Shanghai Futures Exchange (SHFE) over the past six years but ahead of prices perking up earlier this year. China could not avoid making such a commitment when industry leaders such as Rusal of Russia, Alcoa of the US and Hydro of Norway have all shaved good volumes of smelting capacity in attempts to bring supply in line with demand.
The industry in the US has been found most aggressive in dismantling smelting capacity. The number of smelters there in operation will be down from 23 in 2000 when production was 3.7 mt to four mt by this year end when output expected is 565,000 tonnes. Rapid shrinking of the US industry was caused by low aluminium prices, steady rise in dollar value and growing competition from China. The industry in the West, including Russia, is exercising strict production discipline. But for this to bear fruit by way of prices leaving good margins for producers on a sustainable basis, the country that accounted for nearly 55 per cent of world output last year must do its bit. The complaints against China is that no sooner did SHFE aluminium prices started improving earlier this year, than it started doubling down on efforts to bring idled smelting capacity back on production. Government subsidies, including low tariff electricity, which is the biggest cost component in aluminium making and cash support, are the enablers in capacity revival.
In the meantime, the US International Trade Commission (ITC) has begun the process of reviewing "foreign government policies" that result in global overproduction of aluminium and undesirable exports. Although ITC has not named China, its trade practices will be the subject of scrutiny. The Aluminium Association of the US has put the Chinese industry in the dock for its "overcapacity" and "questionable trade practices." Chinese aluminium exports rose to $23.8 billion in 2015 from $6.2 billion a decade ago.
Whether it is aluminium or steel, the first quarter of a year has traditionally seen significant changes in Chinese production and prices that factor in inventories and local and global demand. But this year's aluminium output variance is just wildly unreasonable. Like any other Chinese riddle, this one about aluminium production figures is difficult to unravel. More so because CNMIA made pledges, more than once, of taking 4.6 mt tonne of smelting capacity offline in the face of a fall in aluminium rates on the Shanghai Futures Exchange (SHFE) over the past six years but ahead of prices perking up earlier this year. China could not avoid making such a commitment when industry leaders such as Rusal of Russia, Alcoa of the US and Hydro of Norway have all shaved good volumes of smelting capacity in attempts to bring supply in line with demand.
The industry in the US has been found most aggressive in dismantling smelting capacity. The number of smelters there in operation will be down from 23 in 2000 when production was 3.7 mt to four mt by this year end when output expected is 565,000 tonnes. Rapid shrinking of the US industry was caused by low aluminium prices, steady rise in dollar value and growing competition from China. The industry in the West, including Russia, is exercising strict production discipline. But for this to bear fruit by way of prices leaving good margins for producers on a sustainable basis, the country that accounted for nearly 55 per cent of world output last year must do its bit. The complaints against China is that no sooner did SHFE aluminium prices started improving earlier this year, than it started doubling down on efforts to bring idled smelting capacity back on production. Government subsidies, including low tariff electricity, which is the biggest cost component in aluminium making and cash support, are the enablers in capacity revival.
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But, as Vedanta Aluminium's Chief Executive Officer Abhijit Pati says: "Chinese officials are prone to dismissing all such complaints relating to fair trade distorting subsidies as a potpourri of untruths and wild assertions." Pati's concern is that China will remain prone to pushing its surplus metal in the world market, including India, to the detriment of smelters of importing countries. As floods of cheap imports from China have led to smelting capacity withering in many parts of the world, the truncated industry in the US is aggressively lobbying the Obama Administration to take steps that will force Beijing to rein in production and subsidised export of aluminium products. To add substance to the campaign against unfair trade practices, US aluminium makers funded the visit of a research team to China to establish the veracity of complaints that Beijing and provincial authorities are providing subsidies running into billions of dollars to the industry.
In the meantime, the US International Trade Commission (ITC) has begun the process of reviewing "foreign government policies" that result in global overproduction of aluminium and undesirable exports. Although ITC has not named China, its trade practices will be the subject of scrutiny. The Aluminium Association of the US has put the Chinese industry in the dock for its "overcapacity" and "questionable trade practices." Chinese aluminium exports rose to $23.8 billion in 2015 from $6.2 billion a decade ago.