On November 15th, the Ministry of Finance and the State Administration of Taxation issued a notice on adjusting the export tax rebate policy. Starting from December 1st, 2024, the export tax rebate for aluminum products will be cancelled, involving 24 tax codes such as aluminum sheet, aluminum foil, aluminum tube accessories, and some aluminum bar profiles.
According to customs data, from January to September 2024, the total export volume of 24 related aluminum products in China reached about 4.62 million tons, accounting for 99% of the total domestic aluminum export volume. In 2023, the export volume of related aluminum products in China is about 5.166 million tons, with an export value of 17.74 billion US dollars, accounting for more than 98% of the total export volume. The data shows that in the future, the vast majority of aluminum product export orders in China will be affected by the cancellation of export tax rebate policies.
During the window period before the official implementation of the policy, which is before December 1st, it is expected that there will be a wave of "export rush" in the domestic aluminum products market. In order to complete exports before the policy changes, enterprises may increase their export efforts. However, after the boom, the export volume of related aluminum products is expected to decrease.
In the short term, the cancellation of the aluminum export tax rebate policy will undoubtedly squeeze the profit margin that enterprises originally relied on tax rebates to enjoy, and at the same time, it will weaken the price advantage of China's aluminum products in the international market. This change will directly affect the export enthusiasm of aluminum enterprises and the overall export volume of aluminum products in China. With the tight supply of overseas aluminum materials, the upstream raw material market for aluminum materials has also responded first.
The aluminum price on the London Metal Exchange (LME) quickly rose after the news was announced, especially on October 15th, when the LME aluminum price rose by over 7% during trading. In contrast, domestic aluminum prices have shown a clear downward trend. The differentiation of domestic and international aluminum price trends further highlights the profound impact of the cancellation of export tax rebate policies on the aluminum market.
What is the impact on the aluminum industry?
According to research, most aluminum processing companies involved in export orders have admitted to being greatly impacted. In response to policy changes, some companies are making every effort to accelerate production progress and strive to complete order delivery before the window closes. However, some companies have reported a decrease in export order volume, while the majority of companies hold a pessimistic attitude towards the prospects of future export orders and are currently in a wait-and-see state, making it difficult to take effective measures immediately.
The aluminum processing industry in our country has long faced the dilemma of low industry concentration and overcapacity at the low-end, leading to increasingly fierce competition within the industry and a continuous decline in processing costs, making it the least profitable link in the aluminum industry chain. In this context, the export dependence of aluminum products is particularly prominent in the entire aluminum industry chain. For a long time, thanks to the support of export tax rebate policies, China's aluminum products have enjoyed significant price advantages compared to similar overseas products, and the profit margins of enterprises largely rely on this policy. However, with the cancellation of the export tax rebate policy, the price advantage and profit margin will be weakened, and relevant enterprises have to face the dual challenges of profit margin compression and order loss after the cancellation of tax rebates.
From the overall pattern of aluminum consumption, the export of aluminum products is an important component of overall aluminum consumption. According to data from the National Bureau of Statistics, from January to September 2024, China's cumulative aluminum production reached 50.355 million tons, a year-on-year increase of 8.0%, of which exports accounted for about 9.2%. After the cancellation of the export tax rebate policy, it will be difficult to effectively transfer the export costs to downstream overseas customers in the short term, which will result in some aluminum products being exported back to the domestic market, further intensifying the competitive situation in the domestic aluminum market.
From the perspective of profit distribution in the industrial chain, the upstream links of the aluminum industry, such as alumina and electrolytic aluminum, have high industry concentration and supply bottlenecks. Due to the high dependence on external raw materials and limited electrolytic aluminum production capacity, upstream enterprises have strong bargaining power, and the profits of the aluminum industry have been concentrated in the upstream smelting end for a long time. In contrast, the aluminum processing links in the middle and lower reaches are facing dual pressures of overcapacity and intensified "involution", with processing costs continuing to decline and difficulty quickly transmitting 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 aluminum products in China is expected to gradually recover.
On the one hand, from the perspective of the supply pattern of electrolytic aluminum, China accounts for more than half of the global electrolytic aluminum production capacity and output, and exists as a net importer. At the same time, in recent years, the electrolytic aluminum production capacity in Europe has been shut down in large numbers under cost pressure, and the resumption process has been slow. The construction and production speed of new electrolytic aluminum production capacity outside Europe are also relatively lagging behind. Therefore, from the perspective of raw material supply, the dependence of overseas markets on Chinese aluminum products cannot be ignored.
On the other hand, in long-term export trade, some enterprises in overseas markets have formed a high dependence on China's aluminum products, making it difficult to find alternative supply sources in the short term. With the cancellation of export tax rebates for aluminum products in China, export costs have correspondingly increased, and these overseas enterprises may gradually accept the fact that the prices of Chinese aluminum products have risen. Therefore, in the medium to long term, the export volume of aluminum products in China is expected to gradually recover.
Against the backdrop of the cancellation of export tax rebates and rising export costs, China's aluminum processing industry may show two development trends: one is that aluminum processing enterprises will transfer cost pressure to overseas markets by raising export prices. This process requires a game with overseas downstream enterprises, and enterprises with more complete product strength structure and better quality will be more competitive, thereby motivating enterprises to continuously improve production processes and promote technological innovation. Secondly, enterprises choosing to reduce production costs or shift towards producing aluminum products with higher added value will help further upgrade China's aluminum industry and optimize the export structure of aluminum products. However, the implementation of both trends requires a certain period of time.
Overall, the increase in export prices of aluminum products in China may become the mainstream trend in the future. During this process, China's export-oriented aluminum processing enterprises and foreign trade enterprises will go through a "painful period" and need to actively respond to market changes and seek new paths for transformation and upgrading.
What is the impact on aluminum prices?
From the trend of aluminum prices, the most direct impact of canceling the export tax rebate policy for aluminum products in the short term is a negative impact on the export volume of aluminum products, which has put pressure on Shanghai Aluminum and benefited London Aluminum. However, in the current situation, the average smelting cost of the electrolytic aluminum industry has risen to about 20800 yuan/ton, and the loss situation has further worsened. Enterprises in Henan, Guangxi, Guizhou and other places have stopped production to cope with losses. Meanwhile, given the upward trend in the price of raw material alumina, the cost support for electrolytic aluminum is becoming increasingly significant, undoubtedly limiting the downward space for aluminum prices.
Looking ahead to the medium to long term, the game between prices and profit margins in the upstream and downstream markets may continue for a period of time, and the "strong outside and weak inside" pattern of aluminum prices is expected to continue in the future. If this impact continues to ferment, the external strength and internal weakness of aluminum prices will further deepen, and the price difference between inside and outside will widen. The expansion of price differences will to some extent offset the rise in export costs, thereby helping to restore export volume and profit margins, which will be reflected in aluminum prices. In addition, with the rise in external aluminum prices and the closure of import windows, the import volume of aluminum ingots has decreased, which will also put pressure on overseas aluminum prices.
Considering the leading position of China's aluminum industry in the global market and the high dependence of overseas markets on Chinese aluminum products, the export volume of aluminum is expected to experience a process of first decreasing and then increasing. Therefore, overall, in the short term, Shanghai Aluminum will receive solid support from the cost side, and the downward space is relatively limited. In the medium to long term, the pattern of "external strength and internal weakness" in aluminum prices is expected to find a new equilibrium point in market competition.
Promote the sustainable and healthy development of the aluminum processing industry
In recent years, some countries have launched numerous anti-dumping investigations against various types of aluminum products in China. In the face of anti-dumping investigations and increasing trade barriers, China's cancellation of the aluminum export tax rebate policy will have a profound impact on the country's aluminum industry in the long run.
The implementation of canceling the export tax rebate policy will encourage relevant industry enterprises to actively seek the path of transformation and guide them to develop towards higher value-added fields. Through transformation, enterprises can produce more competitive aluminum products, thereby optimizing the export trade structure of aluminum products in China. Not only will it help improve the overall quality and technological level of China's aluminum products, but it will also further enhance the competitiveness and voice of China's aluminum processing industry in the international market.
In the long run, canceling the export tax rebate policy for aluminum materials will be a crucial step for China's aluminum industry to move towards high-quality development. Through policy promotion, China's aluminum industry will gradually overcome the dilemma of low added value and low technological content, and move towards a higher level and broader market space. This will not only benefit the long-term sustainable and healthy development of China's aluminum processing industry, but also make positive contributions to the prosperity and stability of the global aluminum market.
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