China’s Bid to Rein In Exports Roils Aluminum Stocks and Prices

China’s cancellation of tax relief on exports has left the aluminum industry scrambling to assess the impact on supply flows, with Chinese companies suffering steep stock declines while their international peers rally.

Beijing unveiled an overhaul of its export rebate regime late on Friday, announcing plans to remove a 13% tax rebate on overseas sales of aluminum, copper, and also cutting relief to batteries and solar panels. 

Aluminum Corp of China Ltd. and China Hongqiao Group Ltd., the country’s top two aluminum smelters, slumped as much a 5% in Shanghai and Hong Kong, before paring losses, while Yunnan Aluminum Co. hit its daily down limit of 10% in Shenzhen. Aluminum has risen almost 6% on the London Metal Exchange since Thursday’s close.

Beijing’s move — seen by some analysts as an attempt to ease China’s industrial overcapacity — triggered the biggest impact on aluminum among the affected commodities because of the importance of Chinese exports both to the country’s producers and global buyers. The tax changes come into effect on Dec. 1

“This is one measure to tackle the long-standing low profitability of Chinese enterprises after investment-led stimulus fueled significant overcapacity,” said Li Xuezhi, head of Chaos Ternary Futures Co.’s research institute. “In the near term, it will hit exports. But in medium-to-long term, it will be beneficial as excess capacity will need to be cleared in some ways.”

China’s aluminum industry has historically exported significant amounts of the metal as semi-fabricated products — like rods, plates or foil — that are used by manufacturers or simply re-melted into other shapes. 

The shipments of the metal used in everything from beer cans to automobiles have been a trigger point for trade battles with the US and Europe in the past, with smelters shuttering across the globe due to excess supply, low prices and high energy costs.

The tax tweak comes ahead of President-elect Donald Trump’s return to the White House with a vow to ramp up tariffs to defend American industry. It was also unveiled as President Xi Jinping met US President Joe Biden in Peru, emphasizing China’s desire for cooperation between the word’s top two economies.

New Terms

Aluminum suppliers “will need to renegotiate their contracts and determine how to absorb the 13%,” Citigroup Inc. analysts wrote in an emailed note. “It is expected that ex-China consumers will share some of the costs, leading to higher costs” for them, they wrote.

Chinese aluminum products will remain cost-competitive and any negative impact on the domestic market will be “generally controllable”, state-run researcher Beijing Antaike Information Development Co. said in a note. The market should not be “overly pessimistic”, it added.

Aluminum on the LME was up 0.4% at $2,661 a ton as of 2:18 p.m. Shanghai time.

The response from the copper market has been less pronounced so far because China’s copper products are not as pivotal for the rest of the world as its aluminum supplies. Still, there has been a surge in overseas sales of copper products this year.

Zhejiang Hailiang Co., a major producer of copper tubes and rods, said the impact would be limited and the company would respond by accelerating its overseas investments in places like Vietnam, Germany, the US and Morocco.

Solar Power

For solar manufacturers, the long-term impact of the rebate reduction will likely be minor. China dominates global production, so exporters should be able to pass on increased costs to overseas buyers. That rise will be more than offset by a 30% drop in the price of panels in the past year.