The impact of the cancellation of the aluminum export tax rebate policy on the aluminum market.
On November 15, the Ministry of Finance and the State Administration of Taxation issued a notice regarding the adjustment of the export tax rebate policy, stating that starting from December 1, 2024, the export tax rebate for aluminum products will be canceled, affecting 24 tax numbers including aluminum plates, aluminum foils, aluminum tubes, aluminum tube fittings, and some aluminum bars and profiles.
According to customs data, from January to September 2024, the total export volume of 24 related aluminum products from our country reached approximately 4.62 million tons, accounting for 99% of the total domestic aluminum export volume. In 2023, the export volume of related aluminum products from our country was approximately 5.166 million tons, with an export value reaching 17.74 billion US dollars, accounting for over 98% of the total export volume. The data indicates that the vast majority of our country's aluminum product export orders will be affected by the cancellation of the export tax rebate policy in the future.
During the window period before the policy is officially implemented, specifically before December 1, it is expected that there will be a wave of "rush to export" in the domestic aluminum product market, as companies may increase their export efforts to complete shipments before the policy change. However, after this surge, the export volume of related aluminum products is expected to decline.
In the short term, the cancellation of the aluminum export tax rebate policy will undoubtedly squeeze the profit margins that companies originally relied on from the tax rebates, while also weakening the price advantage of our aluminum products in the international market. This change will directly impact the export enthusiasm of aluminum companies and the overall export volume of our aluminum products. With the tightening of overseas aluminum supply, the upstream raw material market for aluminum has also reacted first.
The price of aluminum on the London Metal Exchange (LME) rose sharply after the announcement, particularly on October 15, when the price of aluminum briefly surged by over 7%. In contrast, domestic aluminum prices showed a clear downward trend. The divergence in aluminum price trends between domestic and international markets further highlights the profound impact of the cancellation of the export tax rebate policy on the aluminum market.
What is the impact on the aluminum industry?
According to research, most aluminum processing enterprises involved in export orders have admitted to being significantly impacted. In response to the policy change, some companies are accelerating their production schedules in an effort to complete order deliveries before the window closes. However, some companies have reported a decrease in export order volumes, while the majority of companies hold a pessimistic outlook on the future of export orders and are currently in a wait-and-see state, finding it difficult to take effective countermeasures immediately.
Our aluminum processing industry has long faced the dilemma of low industry concentration and excess low-end capacity, leading to increasingly fierce internal competition and a continuous decline in processing fees, making it the weakest link in the aluminum industry chain in terms of profit. Against this backdrop, the reliance on exports of aluminum products is particularly prominent within the entire aluminum industry chain. For a long time, thanks to the support of the export tax rebate policy, our aluminum products enjoyed a significant price advantage compared to similar products overseas, and the profit margins of companies largely depended on this policy. However, with the cancellation of the export tax rebate policy, the price advantage and profit margins will face a weakening situation, forcing relevant companies to confront the dual challenges of compressed profit margins and order losses following the cancellation of the tax rebate.
From the overall pattern of aluminum consumption, the export of aluminum products is an important component of total aluminum consumption. According to data from the National Bureau of Statistics, from January to September 2024, the cumulative production of aluminum in our country reached 50.355 million tons, a year-on-year increase of 8.0%, of which exports accounted for approximately 9.2%. After the cancellation of the export tax rebate policy, it will be difficult to effectively pass on export costs to overseas downstream customers in the short term, which will lead to a portion of aluminum product exports flowing back to the domestic market, further intensifying competition in the domestic aluminum market.
From the perspective of profit distribution along the industrial chain, the upstream segments of the aluminum industry, such as alumina and electrolytic aluminum, have a high industry concentration and face supply bottleneck issues. Due to a high dependence on foreign raw materials and limited electrolytic aluminum production capacity, upstream enterprises possess strong bargaining power, resulting in long-term concentration of aluminum industry profits at the upstream smelting end. In contrast, the midstream and downstream aluminum processing segments face dual pressures of overcapacity and intensified "involution," with processing costs continuing to decline and difficulty in quickly passing cost pressures downstream. Therefore, in the short term, the pressure of rising export costs still needs to be borne by aluminum processing enterprises.
In the medium to long term, the export volume of our aluminum products is expected to gradually recover.
On one hand, from the supply pattern of electrolytic aluminum, our country accounts for more than half of the global electrolytic aluminum production capacity and output, and exists as a net importing country. Meanwhile, in recent years, a large number of European electrolytic aluminum production capacities have been shut down under cost pressures, and the resumption process is slow, while the construction and commissioning speed of new electrolytic aluminum production capacities outside Europe is also relatively lagging. Therefore, from the perspective of raw material supply, the degree of dependence of overseas markets on Chinese aluminum products cannot be ignored.
On the other hand, in long-term export trade, some overseas enterprises have developed a high degree of dependence on our aluminum products, making it difficult to find alternative supply sources in the short term. With the cancellation of the export tax rebate for aluminum products in China, export costs have increased accordingly, and these overseas enterprises may gradually accept the reality of rising prices for Chinese aluminum products. Therefore, from a medium to long-term perspective, the export volume of our aluminum products is expected to gradually recover.
Against the backdrop of the cancellation of export tax rebates and rising export costs, our aluminum processing industry may present two development trends: first, aluminum processing enterprises may transfer cost pressures to overseas markets by raising export prices. This process requires negotiation with overseas downstream enterprises, and companies with a more complete product structure and better quality will be more competitive, thereby encouraging enterprises to continuously improve production processes and promote technological innovation. Second, enterprises may choose to reduce production costs or shift towards producing higher value-added aluminum products, which will help further upgrade our aluminum industry and optimize the export structure of aluminum products. However, the realization of both trends will require a certain period of time.
Overall, the increase in the export prices of aluminum products in our country is likely to become a mainstream trend in the future. During this process, our export-oriented aluminum processing enterprises and foreign trade companies will experience a period of "growing pains," necessitating proactive responses to market changes and the pursuit of new paths for transformation and upgrading.
What is the impact on aluminum prices?
From the perspective of aluminum price trends, the immediate effect of canceling the export tax rebate policy for aluminum products is a negative impact on the export volume of aluminum products, leading to pressure on Shanghai aluminum while benefiting London aluminum. However, given the current situation, the average smelting cost in the electrolytic aluminum industry has risen to approximately 20,800 yuan/ton, further worsening the loss situation, with companies in Henan, Guangxi, and Guizhou already halting production to cope with losses. At the same time, considering that the price of alumina at the raw material end still has an upward trend, the cost support for electrolytic aluminum is becoming increasingly significant, undoubtedly limiting the downward space for aluminum prices.
Looking ahead to the medium and long term, the game between upstream and downstream markets regarding price and profit margins may continue for some time, and the "strong external, weak internal" pattern of aluminum prices is expected to persist for a while. If this impact continues to ferment, the degree of "strong external, weak internal" in aluminum prices will further deepen, and the internal-external price gap will widen. The widening price gap will, to some extent, offset the rise in export costs, thereby aiding the recovery of export volume and profit margins, which will subsequently be reflected in aluminum prices. Additionally, as external aluminum prices rise, the import window will close, leading to a decrease in aluminum ingot imports, which will also exert pressure on overseas aluminum prices.
Considering our country's leading position in the global aluminum industry and the high dependence of overseas markets on our aluminum products, the export volume of aluminum is expected to experience a process of initially declining and then rising. Therefore, overall, in the short term, Shanghai aluminum is supported by solid cost factors, and the downward space is relatively limited. In the medium and long term, the "strong external, weak internal" pattern of aluminum prices is expected to seek a new balance in market competition.
Promoting the sustainable and healthy development of the aluminum processing industry
In recent years, various countries have frequently launched anti-dumping investigations against our country's aluminum products. In the face of the pressure brought by anti-dumping investigations and increasingly thickening trade barriers, our country has canceled the export tax rebate policy for aluminum products, which will have far-reaching effects on our aluminum industry from a long-term perspective.
The implementation of the cancellation of the export tax rebate policy will encourage relevant industry enterprises to actively seek transformation paths, guiding them to develop in areas with higher added value. Through transformation, enterprises can produce more competitive aluminum products, thereby optimizing the export trade structure of our aluminum products. This not only helps to improve the overall quality and technical level of our aluminum products but will also further enhance the competitiveness and voice of our aluminum processing industry in the international market.
In the long run, the cancellation of the export tax rebate policy for aluminum products will be a key step for our aluminum industry towards high-quality development. Through policy promotion, our aluminum industry will gradually break free from the predicament of low added value and low technological content, advancing towards higher levels and broader market spaces, which will not only benefit the long-term sustainable and healthy development of our aluminum processing industry but also make a positive contribution to the prosperity and stability of the global aluminum market.