China`s Gargantuan Aluminum Exports Poised to Get Even Bigger
Source: www.chinamining.org Citation: Bloomberg Date: August 13, 2015
China`s ballooning exports of aluminum will probably get even bigger because of the surprise yuan devaluation.
The country is the world`s biggest producer of the metal, which is used in everything from beverage cans to airplanes. Many Chinese producers haven`t cut output even amid slumping prices, partly because of government subsidies, according to Goldman Sachs Group Inc. Domestic demand has weakened at the same time, spurring a flood of aluminum to the global market.
China`s shipments in 2015 through July surged 28 percent from last year, to a record. With this week`s yuan devaluation, the aluminum market should brace itself for even more supplies, because the weaker currency will lower domestic production costs.
"It`s clearly bearish, because at the margin, it lowers domestic cost of production in dollar terms," Stephen Briggs, an analyst at BNP Paribas in London, said in a telephone interview. "It is an encouragement to export" more, he said.
Aluminum for delivery in three months tumbled 14 percent this year to $1,589 per metric ton on the London Metal Exchange as of Wednesday.
The average cost to produce primary aluminum in the country dropped by $12 a ton, to $1,728, after China devalued its currency`s fix against the dollar by 1.9 percent, according to Harbor Intelligence. The firm estimates that a 10-percent devaluation versus the dollar would cut output costs by a further $50, to $1,678 a ton.
Through July, China exported 2.87 million metric tons of unwrought aluminum and aluminum products in 2015, according to customs data. That was the highest for the first seven months in a year since comparable data began in 1999.
"This devaluation is aimed at restoring some of China`s lost export competitiveness," Jorge Vazquez, Harbor`s managing director, said in a research report on Tuesday. "China`s ongoing structural economic slowdown, overcapacity and overproduction will remain major drivers behind falling commodity prices ahead."
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