China is considering an 800,000-900,000mt liquidation of state aluminum reserves in order to ease the recent supply deficit.
According to media reports, this action would be a direct result of curtailments in Yunnan and Inner Mongolia due to recently implemented green initiatives and power efficiency standards. In March, the country had considered a similar 500,000mt liquidation due to high prices. It does not want the material to be inaccessible to domestic industries, as it would stunt the economy.
While the March plan was not executed, reports indicate that this time, China has decided to sell off its aluminum from July in several batches. Notably, this quantity of metal may not really affect the market at all since it is less than a quarter of China’s monthly production. In April, it produced 3.35mn mt of primary aluminum.
However, with the cost of P1020 much higher on the SHFE than the LME, this may be a necessary step for China, the largest producer and consumer of aluminum metal to take. One more surprising fact is that market analysts currently estimate the state reserve around 770,000mt today, much lower than the planned liquidation.