LONDON – The Chinese aluminum machine is once again cranking up. The country produced 2.75 million tonnes of the stuff in September, the second-highest monthly tally ever, exceeded only in June 2015. Annualized run rates have accelerated by 2.16 million tonnes to 33.48 million over the last two months and China accounted for 55.7 percent of global output in September.
These figures, supplied to the International Aluminum Institute by China’s Nonferrous Metals Industry Association, come with a health warning, prone as they are to bouts of alarming monthly volatility. But the trend is firmly upwards and appears to bear out a broad analyst consensus that a period of rare self-discipline by Chinese smelters was doomed to end sooner or later.
The reason that smelters are now turning the taps back on is largely one of price. Shanghai aluminum prices have been on a tear since troughing below 9,000 yuan per tonne in November 2015.
The most actively traded contract on the Shanghai Futures Exchange (ShFE) has this week hit a near two-year high of 13,300 yuan. It has comfortably outperformed the London price since the start of the year but there are grounds for caution about what is driving this supercharged rally.
It might yet all end in tears. And given Chinese exports of aluminum products are rising again, it may not just be local smelters who face a potential sudden reversal of fortunes.
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