CRU Aluminum: LME Weakens on Increased Chinese Production

SHFE aluminum prices were also stable for most of the session, although minor losses resumed in late trading. The cash contract settled at RMB18,435 /t and last settled at RMB18,400 /t.  

Some of this weakness could be linked to Chinese production. There have been heavy rainfalls in southwest China in July and August, resulting in significant improvement of water levels in Southwest China reservoirs. Thus, the electricity supply has been increasing notably.

Three aluminum companies in Yunnan province have increased their operating capacity by 2.1 M t/y at the time of writing from the levels in June, some of it being new capacity. The operating capacity in Yunnan province has now reached a record high of 5.6 M t/y.

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Following a World Trade Organization (WTO) ruling going against it, China’s commerce ministry has urged the US to immediately lift levies imposed on Chinese steel and aluminum imports.

A WTO dispute settlement panel has determined Beijing acted inconsistently with global trading rules by placing additional duties on a range of US goods in response to tariffs the Trump administration introduced in 2018 on national security grounds. The so-called Section 232 levies were 25% on steel and 10% on aluminum. The Biden administration has retained them.

The Chinese commerce ministry is studying the WTO’s report and will follow up in accordance with the rules, said a ministry official, who pointed out the organization had determined last December that the US measures violated international trading rules. The official contended the problem’s root cause is Washington’s unilateral and protectionist moves.

“The United States [has] insisted on going its own way, obstructed the entry into force of the expert panel’s ruling, evaded its obligations, and refused to cancel the illegal tariff measures,” the Xinhua news agency quoted the official as saying.

“China demands that the United States immediately cancels the steel and aluminum Section 232 measures that violate WTO rules and work with other WTO members in the same direction to maintain the rules-based multilateral trading system together.”

The official argued China’s countermeasures were taken in accordance with the law and are legitimate actions to safeguard the country’s rights and interests.

The US trade representative (USTR) welcomed the WTO panel report as it recognized the Section 232 actions on steel and aluminum are national security measures, and China illegally retaliated with what the USTR termed as sham safeguard tariffs.

“The panel rightly rejected China’s argument that the US Section 232 actions are safeguard measures that may be ‘rebalanced’ under WTO rules,” it added.

On the heels of that announcement, the US announced there will likely be further tariffs added to Chinese imports, this time directed at food cans. German and Canadian imports are also subject to this new tariff however at a reduced rate. The new tariffs are based on an investigation that focused steelmakers from these three countries that exported tinplate to the US. The Consumer Brands Association posted a reply on their website hoping that the final tariff rates will be limited as any duty will ultimately work its way down to consumers in the form of higher prices.

While the details have yet to be released, this latest round of tariffs seems to be mostly tinplate focused. Even so, there would likely be spillover effects on aluminum can sheet through the substitution effect. Also, some steel food cans still use aluminum lid stocks.