Tariffs increase aluminum prices bullish
On November 1, China's aluminum ingot export tariff was increased from 5% to 15%. This news has a strong impact on the aluminum market. Increasing the export tariffs on aluminum ingots has changed the existing price relationship between aluminum prices at home and abroad. Although in the long run, it does not affect the balance of supply and demand in the world, but before the market finds a reasonable level of parity, it will form a tight supply of international supply and loose domestic supply in a short period of time. Whether the international aluminum price rising trend continues and the domestic aluminum output and export growth are expected to become the focus of attention in the domestic market for a period of time. However, in the long-term effect, it is profitable both globally and domestically. A drastic increase in tariffs has prompted China to reduce aluminum exports, resulting in higher aluminum prices in Europe and the United States. This has caused no selling of the spot market in the LME market, and it has faced tremendous pressure to force the position. This has caused LME aluminum to rise significantly; after increasing domestic aluminum export tariffs, Inevitably, China's aluminum production capacity has been suppressed.
According to Alain Belda, CEO of Alcoa, the strong aluminum demand in China will play a decisive role in the global aluminum market in 2007. Belda expects that the demand for China's aluminum market will grow at a rate of 20% per year. Therefore, the current problem is whether China's aluminum demand will decline and how fast China's aluminum production capacity will grow. Belda believes that China currently has a large amount of idle capacity for aluminum production. Whether or not idle capacity will be used depends on the internal energy supply situation of domestic aluminum companies in China and the supply capacity of alumina production. China has already greatly increased its alumina production capacity, and the raw material procurement competition among alumina plants has also become fiercer. Although the growth pace of alumina and aluminum production capacity is an important driving factor in the aluminum market, the key price drivers in the next two to three years will be the pace of global demand growth. It is also worth emphasizing that since 2000, China’s aluminum demand has increased by an average of 16% per year. Continued growth at this pace will increase annual demand by 1.4 million tons, which is enough to absorb all expected increases in China's aluminum production. There is no reason to expect that China's annual growth rate of demand will be lower than 10%. It is expected that the growth rate in other regions of the world will decline moderately in 2007. Taking into account the soft landing of the US economy, the increase in demand will exclude 2006 from China. Nearly 4% of the year has slowed to about 2.3% in 2007, and economic growth is expected to accelerate in 2008. It is expected that world demand will increase by nearly 5% in 2008, excluding China.
According to data just released by the Aluminum Association of China, aluminum inventories of manufacturers fell slightly in September, dropping 14,000 tons to 1.6 million tons. The organization’s data on raw aluminum inventories shows that producers’ inventory remains at historically low levels—only 67,000 tons below the 2003 record low. Based on the weekly production, we calculate that producers are now producing inventory for about 3.5 weeks, close to its low point. If one week's production is reduced, about 100,000 tons of stocks will be released. Therefore, the total aluminum inventory is very low. In fact, LME exchange stocks also fell in September (39,000 tons), and the total reporting pool reached a record low of 6 weeks (Western World) consumption. This will provide some impetus for the rise of aluminum and become an interpretation that aluminum will not fall.
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