China's aluminum exports surge to shake the global aluminum market

[Chicago.com] Wall Street News reported on February 13th: China's aluminum exports surged, inciting the global aluminum market, as Chinese tax loopholes have strengthened China's aluminum competitiveness.

In 2014, due to the substantial increase in supply, aluminum prices in the previous period fell by 8% to 2,081 USdollars/ton, while the London Metal Exchange (LME) aluminum prices rose by 4%.

Arguably, exporting aluminum in China does not seem attractive because the government imposes a 15% export tax on it. The policy aims to keep more aluminum in the country.

However, in actual practice, Chinese aluminum producers re-exported aluminum halberd into semi-finished products, according to analysts quoted by The Wall Street Journal. The aluminum that has just been produced is a block, but it can be relatively easily changed its shape and changed to a "semi-finished product" such as a "door" or a "wheel hub cover." After such exports, these "semi-finished products" are remelted into aluminum and transported to the place where they really want to export.

As a result, Chinese aluminum producers can get a 13% VAT refund from “semi-finished products”. Coupled with the premium paid by buyers for LME aluminum, China exports aluminum more competitively than other countries.

Uday Patel, an aluminum analyst at consulting firm Wood Mackenzie, told The Wall Street Journal:

Aluminum "semi-finished" exports have increased significantly. Some of them are only the exits of aluminum exports.

In December last year, China’s aluminum exports reached 488,000 tons, although it is difficult to estimate how many of these are “semi-finished products,” but according to Citi analysis, this figure has increased by 136% from January last year.

In addition to tax loopholes, China's major industrial provinces provide power subsidies for aluminum producers and encourage them to produce more aluminum. Smelting requires a lot of electricity.

In 2014, China’s aluminum production increased by 14% to 28.3 million tons, partly due to the increase in aluminum prices earlier in the year.

However, the main real estate market slowed down and China's aluminum domestic demand did not follow. On the contrary, weak domestic demand led to more aluminum exports.

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