January 12, 2023

China shipped a record amount of aluminum last year; however, decreasing global demand could weigh on exports this year, according to CRU Group. Therefore, China might attempt to shift production to the region where demand needs it, rather than serving customers through its own in-country surplus production. In early 2022, falling aluminum production across Europe due to escalating energy costs forced metals traders to grab up Chinese inventories. However, Chinese exports peaked in May, as Western buyers pulled back from purchases due to fears of a looming global recession. Due to falling domestic demand and the potential for climate-based tariffs on Chinese aluminum production, both CRU and the China Nonferrous Metals Fabrication Industry Association believe Chinese smelters should move production to regions where demand is expected to remain robust, such as North America. (Source: Bloomberg)

AEGIS notes that Chinese aluminum exports tend to peak as LME prices near a short-term top. Given that LME aluminum prices are down almost 40% from the peak in March 2022, this could be a good time for aluminum end users to hedge future needs by buying swaps. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (1/12/2023)

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