Why is Aluminum Declining Despite China’s Production Cuts?

by Trefis Team
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Aluminum, having risen by roughly 30% since the beginning of the year, has displayed signs of decline since early November when the Chinese winter cutbacks have actually been implemented. Winter curtailments in China should have ideally put an upward pressure on aluminum prices due to a fall in supply by the world’s largest aluminum producer. However, aluminum prices have tumbled by close to 8% since the beginning of November, ahead of China’s production cuts.

China had initiated a series of industrial production cuts starting November 15 until March 15, in order to control the country’s alarming levels of smog during its winter months. Aluminum prices soared ahead of the expectation of these curtailments as China is expected to cut nearly 30% of its output this winter. [1]

However, as per the latest production data released by the National Bureau of Statistics of China, aluminum production from January to November stood at 29.54 million tons, up by 1.7 percent from the same period last year even though M-o-M (Month-on-Month) production was lower by 7.8% in November. [2] This figure depicts that the country has not been able to reduce its output as significantly as earlier expected. This has led to a fall in aluminum prices over the last month.

In addition to the above factor, a modest strengthening of the dollar in November in anticipation of expected implementation of the U.S. tax reform and the Fed’s interest hike had led to weakening of the dollar denominated aluminum. This is because the non-ferrous metal becomes comparatively expensive to foreign investors with the strengthening of the dollar.

However, we expect aluminum prices to strengthen in 2018 even after the suspension of China’s production cuts in March, mainly due to the increase in its raw material prices (oil, alumina) used in aluminum production. Furthermore, the increase in confidence on the growth of demand for Electric Vehicles (EVs) would continue to drive aluminum prices as it is used as a key element in its production.

Have more questions about Alcoa? See the links below.


1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa

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  1. METALS-Aluminium hits five-year high as China supply cuts loom, CNBC []
  2. China’s November aluminum output falls to lowest since February 2015, Reuters []
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