February 2, 2023

China exported a record 6.6 million mt of unwrought aluminum last year; however, a recent hike on their aluminum export tariff could lead to fewer shipments this year. This could ultimately tighten global supplies because China is the world’s largest aluminum exporter.  Effective January 1, China raised its export tariff on aluminum products to 30%, up from 15% previously. The Chinese State Council, which sets tariff policy, claims the export tariff hike is meant to spur China’s domestic demand. The previous export tariff was set in 2006. (Source: Reuters, CNBC India, China Customs)

The next data release detailing China’s aluminum export volumes isn’t until April 13, so it will be at least two months before the market can interpret how impactful the new tariff regime will be. However, history suggests that volumes could be down. China normally increases exports as global prices rise, and this was true in the first half of 2022. However, as prices fell in 2H2022, exports also fell. Given that LME aluminum prices are approximately 35% off last year’s high, it is likely that China’s export window is already closed, even if without the new, higher export tariff.

That said, a dramatic decrease in aluminum exports from China could lead to reduced global supplies and therefore higher prices. Aluminum end-users that are concerned about increasing prices could consider buying swaps or call options, as either would establish a maximum aluminum price. 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. (2/2/2023)

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