China’s Aluminium Market Shows Resilience Amidst Global Slump
China’s Green Sector Boosts Aluminium Demand
China’s aluminium market has displayed remarkable resilience this year, with prices on the Shanghai Futures Exchange (SHFE) rising over 1%. This contrasts with the global trend, which saw an over 8% slump on the London Metal Exchange (LME). The strength of China’s green sector, amidst a slow economic recovery, is largely credited for this divergence.
Increased Imports from Russia
An open arbitrage window, created by SHFE outperforming LME, has significantly increased aluminium imports into China. Russia has emerged as a primary source of these imports due to self-sanctioning by Western buyers following Russia’s invasion of Ukraine. As a result, China accounted for 87% of its total aluminium imports from Russia during the first eight months of 2023.
Domestic Aluminium Production Reaches New Highs
Despite the surge in imports, domestic aluminium production in China has also reached new highs. This increase is primarily attributed to an improved hydropower supply in Yunnan province. However, potential disruptions from the forthcoming dry season could lead to a decrease in output and a surge in imports.
Robust Domestic Demand
Low domestic aluminium inventories have underscored the robust domestic demand for the metal, with SHFE stocks falling to their lowest since March 2019. Beijing’s decarbonisation efforts have significantly driven aluminium demand, especially in renewable energy-related manufacturing. This trend is evident in the rapid growth of China’s new energy vehicles (NEV) sector, which experienced a year-on-year increase of over 37% in the first eight months of this year. Aluminium’s critical role in battery electric vehicles further emphasizes its importance in this sector.
Growth in the Solar Industry
The solar industry, another major consumer of aluminium, continues to grow despite challenges from the pressured construction sector. With China leading in solar photovoltaic (PV) capacity additions, the continued expansion of green sectors is expected to counterbalance traditional sector weaknesses and enhance demand for green metals like aluminium.
This article provides insights into the resilience of China’s aluminium market amidst a global slump. The strength of China’s green sector, along with increased imports from Russia and record-high domestic production, has contributed to this resilience. The robust domestic demand for aluminium, driven by Beijing’s decarbonisation efforts and the growth of the solar industry, further solidifies its position in the market. With China’s continued focus on renewable energy and green sectors, the aluminium market is expected to remain strong in the coming years.
