SHANGHAI, Jul. 29 (SMM) -- According to China Customs, China’s exports of aluminum semis were 300 kt during June, with exports failing to break May’s record high of 340 kt, but still up 55.0% YoY. YTD exports from January to June were 1.52 million mt, up 47.6% YoY. Lower exports of aluminum semis were due mainly to rising SHFE/LME aluminum price ratio, and also indicate that China’s export orders of aluminum semis decreased, and that positive impact on China’s aluminum market fundamentals from exports weakened gradually. 

The space of China’s exports of aluminum semis is still small. China’s exports of aluminum semis grew rapidly after the financial crisis due mainly to relatively low costs for primary aluminum and export tax rebates for aluminum semis in China. However, these two advantages can only improve the competitiveness of China’s aluminum semis in the international market, but the growth of actual demand for aluminum semis in Europe and the US is relatively limited given lingering debt crisis, so China’s exports of aluminum semis will inevitably face bottlenecks, with the growth rate of aluminum semis exports unable to register the high growth of over 50% seen in pre-economic crisis period. China’s exports of aluminum semis will fall from 3Q even if China’s export tax rebate policies remain unchanged.

Previously soaring exports of aluminum semis were attributed to market expectations that China will cut or remove export tax rebates for aluminum semis, but not due to increasing consumption.

SMM believes there is little chance China will adjust export tax rebate for aluminum semis in the short term. Small and medium enterprises have suffered a low from continuous credit tightening policies since the beginning of 2011, and in addition to aluminum semis, recent exports of steel and textile are not optimistic as well, with profit margins at enterprises becoming smaller and the growth of domestic demand slowing significantly. In this context, China’s decision to cut export tax rebates will have a greater impact on the medium-to-long development of these industries, and ultimately may affect China’s overall economic development. 

Once China unveils the export tax rebate adjustment policy, China’s exports of aluminum semis will fall sharply. It is difficult to estimate total exports of aluminum semis to be affected by the export tax rebate adjustment, but exports should decline significantly once China’s aluminum semis looses cost advantages, since the current development of China’s aluminum semis is still at a medium level, with small technological advantages. Lower exports of aluminum semis will exacerbate the oversupply of domestic aluminum ingot, and domestic aluminum prices will become increasingly sluggish, and the SHFE/LME aluminum price ratio is expected to decline in the future.