Aluminum Export Boom Reaches its End as China Increases Tariffs

China: China raised export tariffs on unwrought primary Aluminum and alloy at the beginning of this year, following a surge in exports during the early part of 2022. The country, which had been a major importer of raw Aluminum for both 2020 and 2021, unexpectedly became a supplier to Europe when several smelters suspended operations due to high electricity costs.

China's policy to encourage the export of value-add Aluminum products rather than raw metal has been a long standing one, and the recent tariff increases certainly fit with that. However, it's doubtful that such measures would have made much difference to last year's unexpected reversal of trade - exports evaporated while imports surged once more during the latter half of 2022.

China shipped 196,000 tonnes of unwrought primary Aluminum last year, the most since 2008 and a significant increase from the combined total in the previous six years combined. Russian Aluminum dominated the import mix and Russian smelters were the biggest recipients of Chinese Alumina exports.

China experienced an unexpected surge in exports of Aluminum this year due to a nearly doubling of the price premium for physical metal in Europe. This was caused by smelter closures that widened an existing regional supply gap, driving up the premium from $258 per tonne in January to $505 by June. The country shipped 188,000 tonnes of primary metal to the Netherlands, 33,000 tonnes to Turkey, 20,000 tonnes to Montenegro and 5,000 tonnes to Italy in the first half of 2022.

Around 95% of exports were not categorized as "general trade," but as "customs special area trade" instead.

Last year, exports of primary Aluminum from China's bonded warehouse zones were exempt from a tax hike from 15% to 30%. Additionally, a 15% export tariff was imposed for the first time on unwrought alloy. Exports of these materials totaled 225,000 tonnes in 2019, almost all of which were completed under tolling contracts. Despite these figures, China was still a large net importer of alloy last year, bringing in over one million tonnes. However, the wave of primary metal exports has slowed considerably; just 677 tonnes were shipped out in December alone, mostly to Japan and Tanzania.

China's imports of primary Aluminum drastically increased in December 2022 to 128,000 tonnes- the highest monthly tally in over a year. After the second half of 2022, China became a net importer of primary metal with 473,000 tonnes imported. In contrast to 2021, where total imports fell by 58%, Russian Aluminum imports surged by 59% to 462,000 tonnes last year. The ratio of Russian metal in China's import mix increased significantly to 69% from 18% in 2021.

Imports of Russia's unwrought Aluminum alloy saw a massive 71% increase to 57,000 tonnes, making the country the largest non-Asian supplier for these materials. The two countries' Aluminum trade is expected to rise even higher this year despite no official sanctions on Russian Aluminum. Unfortunately, many users in Europe and the United States have opted to avoid Russian brands.

China has become a major destination for Russian Aluminum over the last year, driven by self-sanctioning from Rusal. The company is now looking to further increase sales of low-carbon Aluminum to China, primarily coming from its hydro-powered Siberian smelters.

The partnership also extends to Alumina, an intermediary product used in the Aluminum processing chain. With the arrival of new 2023 contracts, we expect a new wave of displaced Russian metal will be heading towards China.

China's Aluminum exports to Russia rose significantly last year, reaching 843,000 tonnes in 2021—an increase from just 1,750 tonnes the year before. Overall exports reached an all-time high of 1.01 million tonnes since 2018, when China stepped into a Western supply gap due to production issues plaguing Brazil's Alunorte refinery.

Although primary Aluminum imports and exports between China fluctuated last year, export of Aluminum semi-fabricated "semis" products such as foil, plate and wire experienced steady growth.

Exports of semi-finished products have seen a significant increase in China over the past two years - with a 13% year-on-year growth in 2022 and 18% growth in 2021. This promising trend, however, has been tempered by a slowdown in exports during the fourth quarter of the same year, likely due to a combination of decreasing demand from western economies in recession, an increase in trade tariffs on Chinese goods, and early signs of domestic demand recovery following China's transition away from its zero-COVID policy.

Demand is expected to continue improving following the Lunar New Year holidays, leading to further declines in “semis” exports. This could result in China becoming a consistent net importer of unwrought Aluminum, particularly if domestic smelter production continues to be affected by power constraints. Russia's metal supply is set to remain an important and growing part of China's import mix. As Western countries strive to rapidly create 'friendly-nation' supply chains for critical and battery metals, it appears that China and Russia are doing the same with Aluminum.