Summa Silver Corp. (TSXV: SSVR, OTC: SSVRF, FRA: 48X)
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Last Friday, China’s Ministry of Finance announced that starting December 1, the country will cancel export tax rebates for metals such as aluminum and copper. This news prompted aluminum prices to soar, with aluminum futures in the London market rising by as much as 8.5%. Additionally, the aluminum sector in the U.S. stock market saw gains, with some aluminum producers’ stock prices increasing by over 10%. However, aluminum prices within China fell, with Shanghai aluminum dropping by more than 2% at one point.
The cancellation affects 24 tariff codes related to aluminum, covering most of China’s major aluminum products, but excluding high-value-added aluminum products. The Chinese government has not explained the reasons behind this decision, though the aluminum industry in China typically exports aluminum in semi-finished forms for added-value manufacturing or simple remelting as primary metal.
Based on prices as of November 15, the average export profit for Chinese aluminum materials was 2,160 yuan per ton, which included a 13% rebate amounting to 2,858 yuan per ton. The cancellation of the rebate could lead to export losses, potentially restricting aluminum exports from China in the short term. Meanwhile, due to limited capacity expansion in other regions, Chinese producers might pass the tax costs on to overseas buyers.
Analysts from Shanghai Metals Market noted that this policy might pressure the aluminum and copper processing industries in the short term but could drive these industries toward high-value-added products in the long term, as well as encourage companies to expand globally.
Duncan Hobbs, head of research at Concord Resources, commented: “In principle the way the market would solve the shortfall is to build up the export arbitrage from China – so the LME price would rally strongly and that incentivizes Chinese exporters to ship products,”
According to Antaike, a Chinese industry research institution, the policy impacts aluminum exports worth approximately 17.7 billion yuan (about $2.4 billion) from last year, totaling 5.2 million tons, making up 57% of China’s total aluminum and product exports in 2023, excluding scrap aluminum. Chinese Customs data indicates that from January to September 2024, the export volume of these 24 aluminum products was about 4.62 million tons, comprising 99% of the country’s aluminum exports.
Since late September, industrial metal prices have been generally declining, potentially marking the seventh consecutive week of downturns. Economic concerns ahead of the U.S. presidential election were major factors driving these declines. Following Trump’s victory, the U.S. dollar surged, reducing the appeal of dollar-denominated commodities and exacerbating bearish sentiments.
Ewa Manthey, a commodity strategist at ING Bank, suggested that China’s action might be a strategy to address trade tensions following Trump’s election win. She noted that by taking this step, China demonstrated its capacity to influence global markets, potentially using this as leverage in trade negotiations.
