August 13, 2018 / 5:48 AM / 3 days ago

China may end up inadvertent winner from Trump's aluminum tariffs: Russell

LAUNCESTON, Australia (Reuters) - It’s probably not what U.S. President Donald Trump had in mind when imposing tariffs on aluminum imports, but it looks likely that some of the big winners from the 10 percent import tax will be China’s producers.

A worker checks aluminium rolls at a warehouse inside an industrial park in Binzhou, Shandong province, China April 7, 2018. China Daily via REUTERS

While Chinese aluminum companies now face the same tariff obstacle as other exporters to the United States, they appear better placed to benefit from some of the (most likely) unintended consequences of the Trump administration’s policies.

The Trump tariffs and measures against major Russian producer Rusal, along with a strike at Alcoa’s alumina and bauxite operations in Western Australia are combining to roil aluminum markets.

Throw in Trump’s move to double the tariff on aluminum from Turkey and the result is a market that was most likely in a small supply deficit this year is now more concerned about the risk of supply disruptions.

Rusal, which produced 1.87 million tonnes of aluminum in the first half, is a major supplier not only to the United States, but also to other countries around the world.

It is reportedly concerned that it will have to halt production or stockpile output if an agreement on U.S. sanctions against it cannot be reached.

The Trump administration has given Rusal’s U.S. customers until Oct. 23 to end their business with the Russian company.

If no deal is reached to extend, or amend, that deadline, the aluminum market is likely to face severe disruptions as Rusal’s output is blocked from world markets.

The Trump tariffs are also hurting the U.S. aluminum producers they are designed to help, with Alcoa asking for an exemption from the tariffs because it imports essential aluminum products from its facilities in Canada.

Alcoa said in July it will incur as much as $14 million a month in extra expenses, mainly from tariffs levied on aluminum imported from Canada, its biggest supplier.

If Rusal is largely blocked from the global aluminum market, and if strikes do translate into supply disruptions, there are very few producers currently able to take advantage.

CHINA BEST-PLACED?

China’s aluminum producers do have spare capacity, and assuming they can work their way around some of the pollution measures, they are able to make more of the lightweight metal, used in products such as beverage cans and motor cars.

Global aluminum output was 5.321 million tonnes in June, down 2.2 percent from the previous month, according to figures released on July 20 by the International Aluminium Institute.

However, China’s aluminum output, which is more than half of the global total, ramped up in June to 2.83 million tonnes, up 1.6 percent from the prior month, according to official figures.

Daily production in June was about 94,000 tonnes, the second-highest on record, according to Reuters calculations based on data available from the National Bureau of Statistics.

China’s smelters are responding to a rising domestic prices, with benchmark Shanghai futures up 5 percent from the recent low in mid-July to the close of 14,520 yuan ($2,110) a tonne on Aug. 10.

While the U.S. tariffs on aluminum imports have only been in effect since the start of June, they don’t appear to be hurting Chinese exports as yet.

Exports of unwrought aluminum and products surged to the second-highest on record in July, coming in at 519,000 tonnes, according to preliminary trade data released on Aug. 8.

This was up 18 percent from the same month in 2017, and year-to-date exports are 13.6 percent higher than for the first seven months last year.

This data doesn’t suggest the Chinese aluminum sector is struggling, the main issue for them will be attempting to maximize output while complying with a new round of pollution restrictions.

However, newer and more efficient smelters may help China produce more aluminum at a lower cost, while also reducing the emissions intensity per unit.

When Trump launched his initial steel and aluminum tariffs he tweeted that “trade wars are good, and easy to win”.

For aluminum, his actions have so far disrupted supply chains, angered the top producer in his own country, increased manufacturing costs in the United States and elsewhere, and possibly made his No.1 target, China, the main beneficiary.

Editing by Joseph Radford

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