Analysts watching the People’s Republic of China’s aluminium sector predict the summer will see a marked increase in exports from the country, with shipments of semi-formed aluminium to lead the charge.
According to experts, the improved manufacturing environment, coupled with the steady drop in aluminium stockpiles around the world, will increase demand. However, many of the same experts foresee an increase in semis from China driving down prices at the London Metal Exchange, which are in the midst of a 14% rebound over the course of the calendar year. In addition, such a move could also engender tensions over issues of trade.
“China’s exports are getting back to normal. Calendar 2016 was slow in terms of China exports. The Western world has been and is rationalizing, stocks are drawing down,” explained an unnamed source a at a trading house quoted by Reuters.
Down from a twenty-two week supply high-water mark reached in 2009, global stockpiles have fallen to a twelve-week supply, reveals a recent Goldman Sachs report. Demand ran well ahead of the global supply last year, and experts believe the trend will continue over the course of the current year.
“China semis export profitability rose 20 percent which implies more exports over the next 3-6 months,” the Sachs report elaborated.
In addition, the rise in LME’s aluminium prices have far outpaced the rise at the Shanghai Futures Exchange, reaching US$1,981 per metric ton earlier this year, the highest the price has been since 2014. Market experts chalk this up to a significant decline in global stockpiles.
“A lift in semi-manufactured exports is obviously bearish for LME prices which are likely to head lower in the next few months,” said UBS’ analyst Dan Morgan.
He went on to say that prices are likely to recover towards the end of the year due to government-mandated production cuts.
“Our base case is that there will be constraints of some sort in China,” Morgan said, possibly alluding to the mandatory cuts imposed upon smelters in over two dozen cities last month.