London 18/04/2016 - Reports from the US government that China will withdraw export subsidies on aluminium have been "misunderstood" and the status quo of tax rebates for exports remains in place for now, sources in the Chinese aluminium industry told FastMarkets on Monday.
The US Trade Representative office (USTR) said on Thursday that it had signed a memorandum of understanding with China on Thursday that "eliminate any export-contingent criteria from the demonstration base designation process" such as export subsidies on speciality aluminium products, among others.
"As a result of USTR's extensive efforts, this agreement addresses all elements of the massive and complex export subsidy programme. China has now issued and provided more than 130 directives, instructions and notices to address US concerns," the USTR said.
But sources in China do not believe this will cap Chinese exports of finished and semi-finished aluminium products, which currently receive an export tax rebate of 13-15 percent and have been labelled as anti-competitive by industrial bodies in the US and Europe.
"It's a misunderstanding of the policy. So far, we haven't heard of any change on China's aluminium export-rebate policy," Xiong Hui, chief aluminium analyst at Antiake, said.
A swathe of exports from China, which is the world's largest producer and consumer of aluminium, contributed to the massive slump in aluminium prices and premiums last year, in turn leading to mass clusures of primary aluminium capacity outside of the country.
Premiums for aluminium ingots and billets dropped sharply from record highs between late in 2014 and mid-2015 when predictions of a million-tonne deficit ex-China made exports from China, boosted by tax rebates, highly profitable.
LME prices fell 31 percent to a low of $1,459 on November 15, 2015, from a peak of $2,115 per tonne on September 5, 2014.
Similarly, premiums for P1020 commodity-grade aluminium ingots fell from a range of $400-410 per tonne in December 2014 to $70-100 per tonne in August 2015 on a cost, insurance and freight basis to Japan after a wave of Chinese 'semi-finished' aluminium exports hit the market.
Prices and premiums for the metal have remained low ever since; three-month aluminium stood at $1,555 per tonne today.
Critics such as the US aluminium industry and many industry sources claimed at the time that semi-finished products being exported were in fact commodity-grade primary metal either with minimal changes made or simply relabelled to benefit from the export tax rebate.
But despite the USTR's comments, significant changes are unlikely within the aluminium industry as well as others such as steel and agriculture singled out in the release - these sectors are major employers in China.
"It is unlikely for the government to cancel the rebate as it will make Chinese companies less competitive in the market - that’s contradictory to China's One Belt One Road strategy," an aluminium trader there said.
(Additional reporting by Ian Walker, editing by Mark Shaw)