Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The China Nonferrous Metals Industry Association (CNIA) held an online meeting with the country’s top aluminum smelters to address excessive aluminum prices on Monday. 


Participants, which included the Aluminium Corp of China (Chalco) and privately held China Hongqiao Group, agreed that the current 13-year high in prices was irrational as there is no evidence of a high supply-demand gap. The meeting discouraged price speculation, assured reliable supply flows, and facilitated an agreement among smelters to improve efficiencies to curb costs. 


Aluminum prices in the Shanghai Futures Exchange have risen by 36pc year-to-date. In response to the sharp uptrend, China is using metal reserve releases to help manufacturers manage high commodity prices, especially, driven by fear that production controls per energy grid limits will constrain supplies. 


The third batch of state reserves consisting of 70,000mt of aluminum, 50,000mt of zinc, and 30,000mt of copper will be released for auction on Sep 1. The two prior auctions were held in July.


Several aluminum output problems due to power curbs were witnessed in China in H1. The country’s Xinjiang region has also imposed output limits on five aluminum smelters beginning in August to alleviate this issue to some extent.


The National Development and Reform Commission also recently stated that it would encourage smelters to utilize renewable energy instead of hydropower sources. The move could influence companies to reduce interest in regions such as Yunnan with a higher reliance on hydropower.


The 13-year high also elicits memories of the 2008 global market crash. In the US, the June 2021 Consumer Price Index (CPI) rose by 5.4pc annually, becoming a 13-year high recently. Germany’s CPI also hit a 13-year high in August at 3.9pc, above December 1993 levels due to the economic boom from the German Unification. However, associations, federal banks, and governments are taking a more active role in managing the inflationary trends on commodities as economies recover from COVID-19 shutdowns.

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