Aluminium Costlier Because Of Pollution Control In China

Aluminium Costlier Because Of Pollution Control In China

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Global aluminium prices have risen sharply by over 10 per cent in the past month led by a growing deficit in supply due to control of polluting units in China the largest global producer of the metal. With no new capacity coming up elsewhere, the shortage in supply is only expected to grow, the global ratings agency, ICRA has predicted a positive outlook for the metal in the calendar year 2018.

Three-month contract prices of the metal quoted on the benchmark London Metal Exchange (LME) went up to $2,096 per tonne last week. Compared to this, in the last six months, there was an increase of around 4 per cent in prices.

The price rally was driven by expectation from a widening deficit in global aluminium demand-supply balance, following key regulatory developments in controlling ‘illegal’ and ‘polluting’ aluminium production in China, a note on the sector by global ratings agency ICRA said.

“With the global aluminium inventory on a consistent decline in the last two years and the trend likely to continue, global supply is likely to lag demand. Under the given scenario, the sentiment on aluminium prices during the second half of FY18 remains positive.” Jayanya Roy, senior vice president ICRA said.

The positive outlook is likely to benefit domestic aluminium firms led by primary producers of the metal like National Aluminium Company (Nalco), Hindalco and Balco, among others.

Lower aluminium production in China is likely to push the country into a marginal deficit in CY2017, and it is likely to widen further in CY2018, if the authorities remain committed to the regulations, the ICRA note said. This in turn would lead to a large widening deficit globally likely at 2 per cent of global consumption in CY2017 he said adding that the rest of the world has remained in deficit in the last few years, meeting the demand from Chinese exports, and no new large-scale capacity is currently in the pipeline, it added.

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The move to curb China’s output was triggered off in April 2017 by a joint notice by the country’s National Development and Reform Commission (NDRC), Ministry of Industry and Information Technology (MIIT) and Ministry of Environmental Protection (MEP) on streamlining primary aluminium production in China. The notice called for closure of Chinese capacities, which were ‘illegally’ built without necessary regulatory approvals being in place. Such capacities included both the then existing as well as the upcoming capacities, which were set up/were being set up without adherence to the existing rules framed by the Government of China.

Additionally, in February 2017, China finalised its ‘Air Pollution Control’ regulations, which came into effect beginning March 1, 2017. The new regulations are expected to force aluminium smelters, in provinces around Beijing, to cut output by nearly 30 per cent in the winter months of November through March. Read more

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