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Today’s news revealed that the aluminum industry is rushing to test the impact on supply flows after China cancelled its export tax breaks. Chinese companies are seeing sharp stock falls while their foreign counterparts are rising.
Late on Friday, Beijing announced plans to restructure its export return system, eliminating a 13% tax rebate on exports of copper and aluminum and reducing support for solar panels and batteries.
Aluminum Prices Impacts
Yunnan Aluminum Co. reached its daily lower limit of 10% in Shenzhen. The nation's two biggest aluminum smelters, Aluminum Corp of China Ltd. and China Hongqiao Group Ltd., fell by as much as 5% in Shanghai and Hong Kong. Since Thursday's closure, aluminum has increased by over 6% on the Metal Exchange of London.
Beijing's action had the greatest effect on aluminum among the commodities impacted because of Chinese exports' significance to domestic producers and international consumers. Some analysts understand this action as an effort to reduce China's industrial oversupply. The tax modifications take effect on December 1st.
Li Xuezhi Statements
Li Xuezhi, head of Chaos Ternary Futures Co., said:
“This is one way to address Chinese businesses' historically low profitability after massive overcapacity created by stimulus-driven investment.”
“It will have an immediate impact on exports. But, it will be useful in the medium to long run because excess capacity will need to be removed somehow.”
China's aluminum industry has historically exported large volumes of aluminum as semi-fabricated goods. The metal used in everything from cars to beer cans has been shipped, leading to trade conflicts. This metal is either remelted into different shapes or used by producers.
Aluminum and Copper Production
In an email, analysts stated that aluminum suppliers "will need to renegotiate their agreements and decide how to handle the 13%." They noted that "ex-China consumers are expected to share some of the costs, leading to higher costs."
In a note, state-run researcher Beijing Antaike stated that any adverse effects on the domestic market would be "generally controllable" and that Chinese aluminum products would continue to be cost-competitive. He also said that the market shouldn't be "overly pessimistic."
Compared to its aluminum supplies, China's copper exports are not as essential to the rest of the world. So, the market's reaction has been less noticeable. However, copper product sales abroad have increased this year.
Solar Power
The reduction in funding will probably have no long-term effect on solar manufacturers. Since China is the world's largest producer, exporters need to be approved to charge foreign buyers more. The 30% decrease in panel prices over the last 12 months will more than cover that increase.
According to a note from clean energy research firm Gantanhao Technology:
The loss of cash flow from the refund could be harmful for some smaller producers. It possibly speeds up the shutdown of some domestic production overcapacity, as the industry already faces a price war that slashes profits.
