Will China’s new environmental policies create upheaval to the aluminium market?

Mike Davis, CDW MD

Mike Davis, CDW MD

As a result a new Air Pollution Control regulation, China is forcing aluminium smelters to cut outputs by 30% over the winter heating season, resulting in the loss of an estimated 2.71 million tonnes of aluminium.

China has spent decades building its industrial capacity but is now turning its attention to pollution as the priority policy.

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 and 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 outputs by 30% between November and March, with estimates that the cuts will equate to the loss of some 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 reportedly 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 aluminium specialist CDW Systems, commented: “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.”