Aluminium prices have hit a six-month high in China following comments by Chinese Premier Li Keqiang that the country’s economy is showing signs of stabilizing.
The metal, which is used in everything from soda cans to mobile phones, closed at 11,740 yuan ($1,804) per metric ton and ended a seven-month losing streak. Aluminium futures, meanwhile, have rallied 20 percent from the record lows posted at the tail end of 2015.
Rising Chinese exports of the industrial metal have helped turned China into the world’s number one aluminium producer. In recent years, the country has increased production by as much as 50%, driving up production to approximately 24.4 million tons. The total value of Chinese aluminium exports to the rest of the world was pegged at $23.8 billion in 2015.
US imports of semi-fabricated aluminium products from China alone grew 181 per cent from 2012 through 2015. Local primary aluminium production in the US, meanwhile, declined 7.2 per cent in 2015.
These low-priced Chinese exports have led to calls for government intervention by aluminium producers in the US. The United Steelworkers union (USW) and Chicago-based Century Aluminium Company alleged earlier this month that the Chinese government is providing low-interest loans and subsidies to local aluminium manufacturers to flood the market with cheap imports.
The Virginia-based Aluminium Association has also called out the flooding of low-priced aluminium into the international market.
“The current situation is bad for China and bad for the rest of the world,” says the Association on its official website. “Today, as China’s economy has begun to slow, and less of the metal is being absorbed domestically, there is a severe oversupply of Chinese-produced metal.”
According to the Aluminum Association, this oversupply not only puts advanced US manufacturing jobs at risk, it encourages illegal trade practices and contributes to global greenhouse gas emissions.
William Pentland, managing partner of energy and sustainability management consulting firm Brookside Strategies, paints a more severe pictureof a lone country causing an entire market to start breaking down.
“Primary aluminum is supposed to be a commodity,” writes William Pentland on Forbes.com. “Producers are not supposed to be able to influence the market price – at least not unilaterally. When aluminum prices start falling, high-cost producers are supposed to fail before low-cost producers.
“Political influence has become more important than process efficiency for purposes of achieving competitive advantage in the aluminum smelting business. This is not how markets are supposed to function.”
To remedy the situation, the Aluminum Association has called on the US and Chinese governments to improve data transparency, come up with ways to limit the greenhouse gas production of Chinese smelters, and crack down on misclassification.
Among those hit hardest by low aluminium prices is the US recycling industry, which is already suffering from declining oil prices due to increased production in the Middle East. As a result, the recycling business has “fluctuated from slightly profitable to slightly unprofitable” according to David Steiner, the CEO of Waste Management, the largest recycler in North America.
(The author Paul Lees is presently studying journalism after working in the gas industry for 20 years. He also contributes to a number of online sites on various topics.)