China’s Aluminum Output Hits Record, Steel Below 1 Billion Tons

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(Bloomberg) — Chinese aluminum output rose to an all-time high last year, climbing above the country’s capacity limit, while steel fell to a seven-year low, underscoring dramatically different prospects for the two most widely used metals.

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Aluminum production increased 2.4% to to 45.02 million tons, having risen every year this decade, according to the statistics bureau on Monday. The figure for December was a record 3.87 million tons. Annual steel output declined 4.4% to 961 million tons, falling below the 1 billion mark for the first time since 2019, with December at a two-year low of 68.2 million tons.

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The energy transition that China leads relies heavily on aluminum, the lightweight metal used in renewables, power lines and electric car chassis. Steel is the backbone of construction, an industry dogged by the country’s yearslong property crisis. China is the world’s biggest producer of both metals, and both have been subject to output controls to varying degrees.

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For aluminum, that’s taken the form of a 45-million-ton capacity cap, imposed by the government in 2017 to limit structural oversupply, carbon emissions and electricity demand in the notoriously power-hungry sector. Steel hasn’t been given formal targets, but policymakers have put the industry on notice that chronic overproduction needed to be addressed. 

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Aluminum prices are broadly set to benefit from the mismatch between rising demand and constraints on supply, although the picture is muddied by how much self-control the industry is able to exert. Goldman Sachs Group Inc. said in a note last week that discipline around the cap has mostly held, but “it is not a hard stop.”

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The bank forecasts capacity will still rise by 900,000 tons through 2028. “This could result in a larger global aluminum surplus than expected, resulting in lower prices than forecast over the coming years,” it said.

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Although the steel industry is paring output, it faces harder choices given the persistent shortfall in domestic demand. The government has pledged tougher rules on adding new capacity, but so far has stopped short of ordering the swingeing supply cuts necessary to correcting the imbalance.

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According to the latest survey from the China Iron & Steel Association, members raised daily production to nearly 2 million tons in the first part of January from the previous period, although the figure is still 3.3% behind last year’s pace.    

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On the Wire

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China’s economic growth met the government’s target last year despite a pronounced slowdown in recent months. China’s home prices fell in December, closing another tumultuous year for the real estate industry as its debt crisis persists. 

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A large blast at a steel plant in northern China killed at least two workers and injured dozens of others, according to state media.

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Chinese households are scouring for higher-yielding investments as roughly $7 trillion in time deposits come due this year, a shift that could provide additional fuel for the nation’s financial markets. A Hong Kong ‘value’ billionaire has put a quarter of his wealth in gold.