Does the aluminium market face upheaval?
China has spent decades building its industrial capacity but is now turning its attention to pollution as the priority policy, which could affect aluminium production.
The recently introduced Air Pollution Control regulation has been imposed to eliminate coal usage and reduce the emissions of almost every other pollutant across 28 cities.
As part of this, the government has imposed targets to cut industrial metals production including aluminium.
Although aluminium is considered a ‘green’ building material, many older and smaller production facilities in the cities source their power from coal, the main target of China’s anti-pollution initiative.
As a result, China is forcing aluminium smelters to cut output by 30% over the winter heating season (November-March), which could mean the loss of 2.71 million tonnes of aluminium.
China is the world’s largest producer of aluminium and it is anticipated the new environmental regulations will impact supply-demand dynamics, sending shockwaves through the global supply chain.
The news has already seen a hike in global aluminium prices. On the London Metal Exchange, aluminium hit a near two-year high of $1,957 per tonne.
Mike Davis, managing director of CDW Systems, said: “The aluminium market’s main problem for many years has been over-supply, primarily in China, so a cut in output will help to reduce the vast inventory overhang and hopefully work towards a long-term reduction in output from China.
“There is no denying the new regulations will have an impact on the global supply chain, driving up supplier prices and putting pressure on manufacturers to do the same. But the years of excess production should provide a cushion against drastic disruption.”