Steel Products Prices North America

CRU: China Considers Killing Export Rebates on Aluminum

Written by Greg Wittbecker

By CRU Aluminum Advisor Greg Wittbecker

China has been wrestling with inflationary tendencies in its aluminum market for some time: Spot Shanghai Futures Exchange (SHFE) high aluminum is at $3,516 per ton; that compares to $2,139 a year ago and $1,849 five years ago. The Chinese State Reserve Board (SRB) is releasing part of its long-held (2010) stocks of aluminum into the spot market to cool down local physical prices. Chinese imports of primary aluminum are soaring to their highest levels since the Global Financial Crisis of 2008-2009, having reached 744,000 tons during the first half of 2021 and showing no signs of abatement for the second half with widespread curtailments taking place due to power shortages in Guangxi and Yunnan.

Now, in a sign that perhaps the “nuclear option” may be on the table to arrest the hot aluminum price, rumors are increasing that the export rebate for semi-fabricated aluminum may be rescinded.

CRUExport rebates have been a staple of Chinese export trade policy since 1985. Chinese rolling mills and extruders have used rebates to power a massive growth in exports. In 2019, Chinese exports reached 5.7 million metric tons. January-August 2021 exports stand at 3.5 million tons or an annualized run rate of 5.3 million tons.

Chinese semi-producers consume 13-16% of total primary demand within China.

The current rebate program provides for a refund of the 13% Value-Added-Tax (VAT) applied to all semis manufactured and sold for export. This rebate underpins much of the common alloy sheet that is exported. Removal of the rebate could severely undermine the competitiveness of the exporters, already under threat to the very high level of aluminum ingot prices in China.

(The SHFE price is about $182/ton above the London Metal Exchange [$2,929] when stripping out the 13% VAT, which is incorporated in SHFE quotes.)

If the VAT rebate were to be removed and semi exporters were crippled by the loss of this, demand would likely fall sharply…and that may be a short-term effect that the government is willing to endure to bring metal prices down.

Is This Another Example of the Dual Circulation Economic Philosophy at Work?

Chinese observers were quick to pick up on the theme of “dual circulation” when President Xi first talked about it at a May 14, 2020, Politburo meeting. Essentially, it signals a re-ordering of Chinese economic priorities away from exports towards a more balanced emphasis on the domestic economy. The domestic economy represents about 55% of China’s GDP. Xi wants to see that share be increased.

There are several reasons for that, all very pragmatic:

• The Chinese have been getting hammered in anti-dumping cases on many fronts. In aluminum, they have lost on sheet, foil and extrusions in the U.S. Europe has imposed similar dumping duties on extrusions, and China faces sanctions on its sheet exports there also…although they got a nine-month reprieve in the last two weeks. The list of other countries blocking Chinese imports is steadily growing. So, it’s not a bad time to rotate aluminum semis back toward domestic markets given the increasing barriers to entry overseas.

• China has spent 20 years “exporting deflation” and “importing inflation.” The World ex China has feasted on a banquet of cheap commodity goods from aluminum to bath towels, but the Chinese don’t have the luxury to keep doing it. Their competitive advantage with “cheap” labor is ending. Energy costs are rising, and they are experiencing energy shortages.

• Industrial commodity exports have been built on cheap coal-based energy and, effectively, a policy of exporting carbon. In 2000, China represented 8% of global aluminum production and 12% of its carbon emissions. In 2021, China is 58% of production, but 71% of its carbon emissions. Those semis exports of 5.3 million tons represent about 68 million tons of carbon export given the fact they were mainly almost exclusively from primary aluminum. Carbon leakage is a growing point of discussion in Europe, the U.S. and other G-7 countries. China represents a flashpoint in that debate. They are simply the biggest driver of carbon leakage and that’s something that is going to be confronted sooner rather than later.

• When you have 1.4 billion people in your home market, why not capitalize on it. China’s middle class is rapidly expanding, and its purchasing power is rising. Xi’s emphasis on serving this giant market is well-placed. What better way to avoid trade conflict than to focus on your internal market?

• The precedent has already been established with steel. China removed steel rebates for some products on May 1 and Aug. 1, 2021.

When the Ministry of Finance announced the latest removal of steel rebates, it said the action was “to promote the transformation, upgrading and high-quality development of the industry.”

Aluminum certainly will be asked to follow suit, with a focus on more high-end semis and finished goods. However, the shock to the system may be jarring…but the government may believe that this is the best way to tamp down aluminum price inflation.

Greg Wittbecker joined CRU in January 2018 after retiring from Alcoa, where he was Vice President of Industry Analysis and Managing Director of Alcoa Beijing Trading, based in Shanghai, China. His career spans 35 years in the aluminum industry, having also held senior commercial and management roles at Cargill, Wise Metals and Koch Supply and Trading. Greg brings perspective on the entire aluminum supply chain from bauxite to aluminum finished products and will be a regular contributor to SMU going forward. He can be reached at

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