11 Dec

Why We See a Divergence in Chinese Steel and Aluminum Exports

WRITTEN BY Mark O'Hara FEATURED IN Commodities

Aluminum versus steel

As we’ve already seen, China’s steel exports have fallen steeply, but its aluminum exports have risen on a yearly basis this year. Let’s see why we’ve seen a divergence in China’s steel (X) (AKS) and aluminum exports (AWC).

Why We See a Divergence in Chinese Steel and Aluminum Exports

Supply side

Chinese steel production has risen significantly this year. China produced 72.4 million tons of steel in October 2017, a 6.1% rise year-over-year (or YoY). Year-to-date, production has risen 5.3% compared to the same period last year. According to data released by the International Aluminum Institute, China produced ~2.5 million metric tons of aluminum in October 2017, a fall of 6.6% YoY. October marks the third straight month that we’ve seen a yearly decline in Chinese aluminum production. In the first ten months of 2017, Chinese aluminum production rose 4.8% compared to the corresponding period last year.

Looking at the official data, we find that China’s steel and aluminum production has risen on a YoY basis in 2017. However, there’s a catch. In aluminum, China plans to curtail some of its polluting capacity in winter months to address the smog situation. The same holds true for steel. However, along with capacity cuts in the winter months, China has shut down some of its illegal steel capacity. As some market observers have pointed out, these illegal plants were possibly not counted in China’s official steel production data.

So while China’s official steel production data show a sharp yearly increase, it could be due to the substitution of illegal production by legal production.

Along with supply, there are also some demand-side differences between steel and aluminum (AA) (S32). We’ll look at those in the next part.

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