Aluminum Soars as China Scraps Tax Sweetener That Fueled Exports

Aluminum jumped on Friday after China said it would cancel a tax rebate that’s helped fuel a decades-long boom in exports and shielded an industry prone to overcapacity.

Author of the article:

Bloomberg News

Archie Hunter and Jack Ryan

Published Nov 15, 2024  •  2 minute read

A worker at the Zhejiang Huanergy Co. production facility in Jinhua, China, on Friday, May 31, 2024. Huanergy, as the company is known, supplies copper foil to Chinese powerhouses like BYD Co. and Contemporary Amperex Technology Co. Photographer: Qilai Shen/Bloomberg Photo by Qilai Shen /Bloomberg

(Bloomberg) — Aluminum jumped on Friday after China said it would cancel a tax rebate that’s helped fuel a decades-long boom in exports and shielded an industry prone to overcapacity.

Futures in London jumped as much as 8.5% following the announcement from the country’s Ministry of Finance. China’s aluminum industry historically has 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. 

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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. 

“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 NV commodity strategist Ewa Manthey. 

China’s exports of semi-finished aluminum rose to 5.2 million tons in 2023, according to state researcher Beijing Antaike Information Development Co. That’s equivalent to about 7% of the global aluminium market.

The tax rebate — applied across a range of aluminum products including pipes, plates, sheets and strips — was staggered up to 13%. It was also removed for copper and lowered for some refined oil, solar, battery and non-metallic mineral products.

Its removal, enforced from December, is likely to restrict flows from the country 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 tax cost to overseas buyers, they said.

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“Given China’s position as the largest global producer of aluminum and alumina, the market appears to be pricing that these semi fabricated product flows need to continue, pushing up the LME price and potentially weighing on China prices,” Morgan Stanley strategist Amy Gower said in a note, adding that Mexico was the largest recipient of semi-finished Chinese aluminum last year.

Earlier 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 Inc. upgraded its growth forecast for China to 5% for 2024, though it cautioned tariff concerns would be “the main source of growth concern.”

Industrial metals had drifted lower since late-September and were on track for their seventh consecutive weekly fall. The greenback’s spike since Donald Trump’s victory, which makes commodities priced in the currency less appealing, added to the bearish sentiment. On Friday, the dollar retreated before paring losses and trading close to multi-month highs.

Aluminum’s price jump was the biggest since April, and futures traded 6.1% higher as of 16.12 p.m. on the London Metal Exchange, at $2,670 a ton. Copper, zinc and nickel also gained.

—With assistance from Winnie Zhu and Jack Farchy.

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