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China wants to take up large responsibility for aluminum exports

  • Author:Dong Xing
  • Release on:2018-04-20
Since the United States imposed sanctions against Russian baron Oleg Deripaska and his aluminum kingdom Rusal, this shock wave has continued to fluctuate in the global market.

Last week, Rio Tinto stated that it declared force majeure on some raw material contracts. The company issued an early warning this week that due to sanctions, it may adjust this year's aluminum production forecast.

At the same time, some of Japan’s large trading companies have demanded that RUSAL stop supplying aluminum(5052 aluminum strip on sale) to them because of fears of being subject to secondary sanctions. Each year, Japan imports approximately 300,000 tons of aluminum from RUSAL, which accounts for about 16% of the country’s total import demand.
At present, this once very substantial aluminum supply chain has broken along multiple lines. With increasing supply concerns, the market turned its attention to China, hoping that it could become a potential source of aluminum supply.

The stock of aluminum in the Shanghai Futures Exchange's registered warehouse is nearly 1 million tons. If the price is right, these aluminum will flow out of China.

Since the US Department of the Treasury announced its sanctions against Russia on April 6, London’s aluminum prices rocketed. Three-month aluminum on the London Metal Exchange (LME) has risen more than $600 in the last two weeks to $2,718 per ton, the highest level since May 5, 2011.

This opened the door to a widening of the spread with Shanghai Aluminum, and Shanghai Aluminum did not respond much to the volatility of the London Metals Market.

However, CRU analysts said that to promote Chinese aluminum(Aluminum foil manufacturer china) exports and fill the gaps in other parts of the world, aluminum prices need to further increase. This is because China's primary aluminum exports must pay an export tax of 15%, which is different from the export of VAT refundable goods.

According to the trends of the metals markets in London and Shanghai, CRU estimates that the aluminum price will be close to 3,000 US dollars per ton, so that the 991780 tons of aluminum in the Shanghai Futures Exchange warehouse can be released.

However, if the export of Rusal products from Russia is blocked, the price of aluminum rose to 3,000 US dollars has become a necessary condition.

Eoin Dinsmore, head of CRU's raw materials and product research, said that long before the sanctions, CRU had estimated that the aluminum supply gap outside of China was around 1.8 million tons.

Coupled with Russia's monthly exports may be reduced by 200,000-23,300 tons, the demand for aluminum materials(1100 aluminum coil on sale) in China will become urgent.

Goldman Sachs agrees with this and believes that a complete disruption of RUSAL's exports may lead to a high price of US$3,200.

Goldman Sachs’ view is that RUSAL will be restructured to bypass the sanctions so that both production and exports can continue, but Goldman Sachs still raises its price forecast to reflect this uncertainty.