The entire value chain of the Aluminium industry is like a chain of dominoes. A shift in one part of the value chain can affect the whole lifecycle of aluminium production and consumption. Now, this aluminium production and consumption life cycle depends on:

• Energy (electricity or coal)
• Government policies on bauxite mining
• Government policies on the import of aluminium
• Government policies on the tariff imposed on imported aluminium
• Supply and demand scenario

As you can see, the aluminium industry’s growth depends on many external factors. Arguably, it’s the government regulations, policies, and tariffs that impact this industry the most.

The top 7 aluminium-producing countries are China, India, Russia, Canada, UAE, Bahrain, Australia, Norway, the United States, and Iceland. The trade policies adopted by these countries have, time and again, shaped the Aluminium industry – sometimes positively and sometimes negatively. Let us explore how these policy changes shape the industry both on a macro level and a micro level.

China’s export tax on aluminium

In 2017, China reduced export tax on aluminium ingots to 0 per cent from 20 per cent. However, the question is why China has imposed an export tax in the first place.

The answer lies in the stupendous growth of the Chinese economy in the last two decades. Infrastructure played a big part in this growth. It has been estimated that at least 14 per cent of China’s growth involves infrastructure expansion. The period that we are talking about is from 2003 to 2016. During this period, China started imposing export tariffs on raw aluminium. The result? Downstream aluminium product manufacturers got raw aluminium at a lower price compared to their counterparts in other countries.

• A 15% export tax on primary aluminium enabled downstream producers to source the metal at a lower cost.
• Finished aluminium products and semis were produced at a lower cost. These were then exported to other countries. As a result, producers of these finished goods had an unfair advantage over other such producers in other countries.
• Combined with the export tax, subsidised aluminium production led to a surplus of supply during 2016-17.

Chinese overproduction of aluminium and the fall of aluminium prices on LME

Unfortunately, the Chinese economy has almost flatlined after two decades of hypergrowth. As a result, the demand for aluminium decreased. According to reports in 2017, China had a surplus of about 2.3 million tonnes of aluminium. The country needed to offload this in order to keep the supply and demand balanced. On top of that, China only partially met its target of reducing aluminium production. Hence, it temporarily lifted the export tax on the metal in 2017. The result? The oversupply of aluminium on a global level made the prices of aluminium and aluminium products plunge.

The effects of tariffs imposed by the US on aluminium imports

In 2018, diplomatic tensions between the United States and China rose to a new level. The US government-imposed tariffs on aluminium imports in response to the tension and the oversupply scenario. The direct outcome of this move was in terms of a supply and demand scenario. The demand for primary aluminium produced in the US increased as imports dried. This, in turn, resulted in some specific outcomes:

• As the oversupply scenario eased, demand and supply reached manageable levels. This relative decrease in supply increased the price of aluminium by 1.6% domestically.
• Now, since downstream producers had to rely on domestically produced aluminium, the move helped primary aluminium producers in the US.
• Domestic production increased by $0.9 billion in this period.

However, the imposition of tariffs had some negative impacts as well. The most prominent of such effects was that as the supply of aluminium reduced due to decreased imports, the price of primary aluminium increased. A price rise of at least 0.2 per cent was observed in downstream aluminium products. Production in the downstream industries suffered a decrease of 0.6 per cent as well. To give a practical example of the negative impact of the tariffs, we can look at the US beverage industry. As a result of the tariffs, the US beverage industry saw an increase of $1.4 billion in costs.

Carbon tax and its differing impact on the aluminium industry of India and Norway

From 2026, countries in the European Union bloc will impose a tax on imports like aluminium. This tax will be levied based on the amount of CO2 emission during the production of such imported aluminium. This is to make sure that countries trying to produce aluminium in an emission-intensive way (which makes the production process cheaper) don’t get an unfair advantage over Aluminium producers in the EU that have started producing aluminium in a sustainable way (which makes the production process a little expensive).

Every country that exports aluminium to the European Union will be affected by this move. As an example, let’s see how India’s Aluminium industry will be affected by this new Carbon Tax. According to a Financial Express report, this tax will lead to an incremental cost burden of $1500 to $1600 per tonne of aluminium exported to the EU. As a result of this policy, India’s Aluminium industry – which largely depends on coal-based power generation – has to bear the brunt of an increased export cost.
However, since Norway has an existing Energy Trading System (ETS), emission-intensive aluminium producers are already taxed. This is why the new Carbon Tax proposed by the EU won’t be imposed on aluminium coming from this country.

Geopolitics and the Russian aluminium industry

Geopolitical tensions between Russia, the United States, and the EU have again impacted the Russian Aluminium industry. After Russia invaded Ukraine, the United States – as a national security measure – imposed a 200% tariff on imported aluminium that is smelted in Russia (or its derivative products). Since Russia was the fifth largest supplier of imported aluminium in the United States prior to this move, the tariff significantly impacted the Russian Aluminium industry – specifically on Rusal.

The bottomline

As can be seen from the analysis, the growth and decline of the global aluminium industry depend largely on various decisions made by governments across the country. This article taught us how governments’ push towards hyper-growth benefited the domestic aluminium industry. At the same time, we also learn how the US tariffs imposed on aluminium hurt China’s aluminium exports to the US but boosted the growth of domestic aluminium producers while negatively impacting downstream producers. Furthermore, we saw how government decisions regarding sustainable aluminium production are starting to affect India’s aluminium exports. In each of these cases, the domino effect is explicitly visible. This is why experts in this industry are always on the lookout for new government regulations. In this dynamic industry, the only constants are new regulations and their reactions.