On November 15, 2024, the Ministry of Finance announced the "Notice on Adjusting Export Tax Rebate Policies." Aluminum plate/sheet and strip, and aluminum foil are included in the list of items for which tax rebates will be canceled.
In recent years, China's monthly aluminum semis exports have mostly ranged between 400,000-600,000 mt, with the largest portion being aluminum plate/sheet and strip, whose monthly export volume has mostly been between 200,000-350,000 mt. Aluminum foil exports have also been significant, with monthly export volumes usually exceeding 100,000 mt. Among China's aluminum semis exports, aluminum plate/sheet and strip, aluminum extrusion, and aluminum foil together account for over 75%.
For the Chinese aluminum semis producers, the overseas market cannot be underestimated. In the past five years, the export volume of aluminum plate/sheet and strip accounted for 20%-30% of the production, while aluminum foil accounted for as high as 29%-33%. If there is a sudden drastic change in the aluminum semis export market, the Chinese aluminum semis industry will inevitably undergo significant changes.
However, the current Chinese aluminum plate/sheet, strip and foil market is facing both internal and external challenges. According to the SMM survey, from January to October 2024, the operating rate of China's aluminum plate/sheet and strip, and aluminum foil industry mostly ranged between 60%-70%, which is significantly lower compared to previous years. Insufficient demand is the main reason for the poor performance of the operating rate in China's aluminum plate/sheet, strip and foil industry.
Poor demand has led to a continuous decline in processing fees. Customs data shows that in the past two years, the average processing fees for aluminum plate/sheet and strip, and aluminum foil exports have shown a unilateral downward trend, with a decline of nearly 50% compared to two years ago. Domestic processing fees for aluminum plate/sheet, strip and foil products have also continued to decline, with some product processing fees falling close to the cost line, leaving almost no profit margin.
The gradually declining processing fee has also prompted industry thinking. Some industry insiders pointed out that exports are meant to bring foreign money into Chinese hands, but the low processing fee makes foreign trade more like China selling resources cheaply. Coupled with the significant increase in the expectation of US tariffs on China after the US election, even if China does not cancel the tax rebate, the US is likely to impose tariffs in the future. Therefore, canceling the aluminum semis export tax rebate at this time, although it brings certain impacts to enterprises, aligns with national interests and helps guide the high-quality development of the industry.
With the implementation of the aluminum semis export tax rebate cancellation policy, a series of impacts have followed. Several aluminum plate/sheet, strip and foil enterprises reported that their foreign trade departments have been busy with two main tasks: adjusting inventory and negotiating prices. The policy will take effect on December 1, and many aluminum plate/sheet, strip and foil enterprises reported a rush to export, with foreign trade departments either busy with shipping and customs declarations or communicating with domestic and foreign customers to redirect some products originally planned for the domestic market to overseas markets. The average export prices of aluminum plate/sheet and aluminum foil in October were $3,053/mt and $3,625/mt, respectively. The 13% tax rebate cancellation means that the average export cost per ton of aluminum plate/sheet and aluminum foil will increase by approximately $397 and $471, respectively. The increased cost far exceeds the export profit margin of aluminum plate/sheet, strip and foil enterprises, necessitating an increase in processing fees.
However, as mentioned earlier, the overseas market demand is also insufficient, and the supply-demand relationship does not allow aluminum plate/sheet, strip and foil enterprises to significantly increase processing fees. Most of the additional costs will need to be borne by the aluminum plate/sheet, strip and foil enterprises themselves. According to the SMM survey, as negotiations progress, most enterprises are expected to ultimately bear 0%-60% of the additional costs. Overseas market profits will shrink again.
After the tax rebate cancellation, the price advantage of Chinese aluminum plate/sheet, strip and foil products in the overseas market will be greatly reduced. Some aluminum plate/sheet, strip and foil products, such as can stock, have insufficient overseas capacity and are highly dependent on Chinese manufacturing. It is expected that the export volume will not be significantly impacted after the processing fee increase, and overseas customers will bear more of the additional costs. However, for other products where overseas capacity is not very tight, the price advantage is almost the only reason they can occupy a place in the overseas market. With the increase in export costs, the export volume of such aluminum plate/sheet, strip and foil products is likely to decline significantly. Enterprises losing overseas orders may adjust their strategies to compete more aggressively in the domestic market. Nevertheless, the cancellation of the export tax rebate, although it may worsen the supply-demand relationship in the short term and result in the loss of some overseas orders, will help enterprises strive for national profits and guide the high-quality development of the aluminum plate/sheet, strip and foil industry.
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