China tax rebate cuts boost aluminium stocks; shares rally on price surge

Beijing's move may further boost aluminium prices as exports from the country are set to decline starting December

The shares of aluminium manufacturers rallied on Monday on the back of a sharp rise in the price of the lightweight metal over the weekend, following China’s announcement that it will withdraw export tax rebate for the commodity.

 

The shares of National Aluminium Company rose by 8.6 per cent, Hindalco by 3.8 per cent and Vedanta by 3.2 per cent. The aluminium prices in the spot market on the Multi-Commodity Exchange (MCX) rose over 2 per cent.

 

The Nifty Metal index, a gauge tracking metal companies, rose 1.9 per cent.

 

China’s withdrawal of the export tax rebate, which will be enforced from December, is likely to restrict aluminium flows from China in the short term. 

 

 

"Post the US election, all commodities prices crashed except aluminium. Bauxite prices are strong. NALCO has a substantial captive of bauxite. The second quarter's results of NALCO also enthused investors,” said Chokkalingam G, founder of Equinomics. 

 

When asked about the outlook for aluminium stocks, Chokkalingam said investors should be nimble-footed.

 

"The prospects of industrial metals are always cyclical, and one has to play the cycle. These stocks could have more upside, but one should be vigilant enough to book profits. I would not advise investors to buy at these levels because the valuations are stretched,” said Chokkalingam.

 

“One can buy metal stocks at high PE during the bear period as profits are low, and it is reasonable to anticipate a turnaround. But buying metal stocks at double-digit PE during a rally is not wise as a correction always follows it," Chokkalingam said.

 

Beijing unveiled an overhaul of its export rebate regime late on Friday, announcing plans to remove a 13 per cent tax rebate on overseas sales of aluminum, copper, and also cutting relief to batteries and solar panels.

 

China’s aluminum industry has historically exported significant amounts of the metal as semi-fabricated products like rods, plates or foil that are used by manufacturers or simply re-melted into other shapes. 

 

The shipments of the metal used in everything from beer cans to automobiles have been a trigger point for trade battles with the US and Europe in the past, with smelters shuttering across the globe due to excess supply, low prices and high energy costs.

 

The tax tweak comes ahead of President-elect Donald Trump’s return to the White House with a vow to ramp up tariffs to defend American industry.          

 

(With agency inputs)