Aluminium Prices Jump Following China’s Decision to Cancel Tax Rebate
Aluminium futures in London jumped as much as 8.5 per cent following China’s announcement to cancel a tax rebate that has helped fuel a decades-long boom in exports and shielded an industry prone to overcapacity.
Background
China’s aluminium industry has historically exported significant amounts of the metal as semi-finished products, which are used in value-added manufacturing or simply re-melted into commodity-grade shapes. The shipments of the metal 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.
Impact
The removal of the tax rebate, enforced from December, is likely to restrict flows from China in the short term, analysts from Shanghai Metal Market said in a note. Still, the capacity for output growth elsewhere is limited, so Chinese producers have room to shift the tax cost to overseas buyers, they said.
Analyst Insights
“This could be seen as a strategic move in the context of trade tensions following Trump’s win in the US presidential elections,” said ING Bank commodity strategist Ewa Manthey.
“Given China’s position as the largest global producer of aluminium and alumina, the market appears to be pricing that these semi-fabricated product flows need to continue, pushing up the LME (London Metal Exchange) price and potentially weighing on China prices,” Morgan Stanley strategist Amy Gower said in a note.
Market Reaction
Earlier last Friday, industrial metals had been boosted by retail sales figures that showed consumption growth nearly caught up to factory output in the world’s biggest importer of metals. Thus far, China had experienced a lopsided recovery, where household spending had trailed production, held back by sluggish sentiment among shoppers and the private sector.
Citigroup upgraded its growth forecast for China to 5 per cent for 2024, though it cautioned that tariff concerns would be “the main source of growth concern.”
Conclusion
The cancellation of China’s tax rebate on aluminium exports is likely to have a significant impact on the global aluminium market. The removal of the tax rebate will restrict flows from China in the short term, but Chinese producers may shift the tax cost to overseas buyers. The move is seen as a strategic move in the context of trade tensions following Trump’s win in the US presidential elections.
FAQs
Q: What is the significance of China’s decision to cancel its tax rebate on aluminium exports?
A: The cancellation of the tax rebate is likely to restrict flows from China in the short term, but Chinese producers may shift the tax cost to overseas buyers, affecting the global aluminium market.
Q: Why did China introduce the tax rebate in the first place?
A: The tax rebate was introduced to help fuel a decades-long boom in exports and shield the aluminium industry from overcapacity and low prices.
Q: How will this move affect the global aluminium market?
A: The removal of the tax rebate will likely push up the LME price and potentially weigh on China prices, affecting the global supply and demand balance.
Q: What are the implications for China’s growth forecast?
A: Citigroup upgraded its growth forecast for China to 5 per cent for 2024, but cautioned that tariff concerns would be “the main source of growth concern.”
