SecondBiggest Aluminum Maker Sees Chinese Exports Slowing United Co. Rusal

Second-Biggest Aluminum Maker Sees Chinese Exports Slowing

China’s aluminum production fell 2% in the first three months of the year to 7.34 million metric tons, while overseas shipments shrank 10% to 1.48 million tons through April.

China, maker of about half the world’s aluminum, will export less in 2016 as output expands at the slowest pace in five years and a price rebound fails to spur substantial smelter restarts, according to United Co. Rusal, the biggest producer outside the Asian country.

“We don’t think that the recent price rally will lead to massive restarts in China,”  Oleg Mukhamedshin, deputy chief executive officer, said before a conference in Shanghai on April 10. “The major part of idled capacity is still unprofitable at current levels.”

Prices of the metal used in everything from kitchen sinks to window frames have rallied 10% this year in Shanghai as policy makers vowed to bolster growth and an easing of credit spurred a rebound in the property market.

China’s aluminum production fell 2% in the first three months of the year to 7.34 million metric tons, while overseas shipments shrank 10% to 1.48 million tons through April, government data show.

Demand will grow faster than production this year in China, curbing overseas shipments as smelters find better prices at home, said Mukhamedshin, who predicts that consumption is set to increase 7% to 32.4 million tons, while output rises 4.6% to 33.2 million tons.

Domestic use already increased 6% in the first quarter on year, Standard Chartered Plc analysts including Paul Horsnell said in report dated May 3. In a sign of tighter supplies, inventories monitored by the Shanghai Futures Exchange have tumbled about 12% since the middle of March.

Record Shipments

Citigroup Inc. and Macquarie Group Ltd. have signaled that the surge in prices would spur a jump in output that may threaten the rally. China is poised to increase shipments as the country produces 3 million tons more than it consumes this year, Citigroup analysts including David Wilson said in an e-mailed note last month. Rates had shot beyond expectations, partly because closed smelters doubted the rally’s sustainability, Ian Roper, director in Macquarie’s commodities research division, said earlier this year.

Massive capacity restarts would lead inevitably to another downturn and nullify improvements in prices and profitability, Mukhamedshin told the conference on Tuesday. While consumption in China will probably rise to at least 40 million tons by 2020, growth rates are weakening and the industry needs to revise its strategy in the face of slowing demand, he said.

Futures in Shanghai climbed 20 percent this year to a 10-month high in April before prospects of higher output and an exchange clampdown on speculation triggered a drop of 10% to 11,905 yuan ($1,827) a ton on May 10.

Mukhamedshin said he supports the regulatory steps to curb speculation. “Any producer or consumer would certainly welcome such moves where the price discovery is free from excessive noise and is better reflective of current fundamentals,” he said before the conference.

Record shipments from China in 2015 helped send global prices to their lowest level in more than six years in November, cutting profits at foreign smelters and fueling trade tensions from India to the U.S. This year, Rusal believes that Chinese exports won’t be enough to fill the gap in supplies outside the country, Mukhamedshin said.

A Chinese industry official said on Tuesday that a significant part of the smelting industry was actually making money. Prices should average 11,780 yuan to 12,000 yuan this year, which will ensure profits for as much as half of the country’s producers, Wen Xianjun, deputy chairman of the China Nonferrous Metals Industry Association, told the conference.

Capacity restarts have been limited, supply in China is not increasing as fast as demand and the metal is better from a fundamental perspective this year than other metals, Wen said.

TAGS: The Economy
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