The global aluminium market is witnessing significant shifts as China's annual production capacity inches close to the government-imposed cap of 45 million tonnes. This limitation has resulted in fewer new smelters being constructed, and production rates have been further hampered by hydro power shortages in drought-stricken provinces like Yunnan.
In contrast, the consumption of aluminium in energy transition sectors remains robust, partly fueled by strong exports of new-energy technologies, including solar panels. Interestingly, there's no indication of a substantial surplus in the mainland market. Current stock levels registered with the Shanghai Futures Exchange are relatively moderate, standing at 101,537 tons.
Notably, exports of semi-fabricated aluminium products from China, often viewed as an indicator of domestic market oversupply, have decreased by 12% last year compared to 2022. This decline suggests a balanced, if not tight, domestic market scenario.
There is, however, speculation that some of the aluminium labeled as "imported" into China last year might currently be in bonded warehouses within the country. Official customs statistics do not distinguish between metal imported for immediate use by Chinese consumers and that stored for long-term use, potentially as collateral.
Regardless of these nuances, the situation spells positive news for the London Metal Exchange (LME) and the Western aluminium market. The increasing complexities of trading Russian aluminium due to Western sanctions are reshaping market dynamics. The UK has already prohibited its citizens from physically dealing in Russian metal, posing significant challenges for the London-based exchange.
Furthermore, there are intensifying calls within the European Union to escalate economic pressure on Russia by extending sanctions on Russian aluminium. While primary metal has been spared from a blanket sanctions ban so far, the likelihood of Russian aluminium becoming increasingly problematic for Western consumers is on the rise.
This evolving scenario is not just a concern for Rusal, the major Russian aluminium producer, but also for Chinese consumers who rely heavily on imported aluminium. The global aluminium market is thus at a critical juncture, balancing between Chinese consumption patterns and the geopolitical implications of Western sanctions on Russian metal.
