Alcoa CEO sees ‘game changer’ in China’s aluminium curbs

Companies that rely on coal-fired power are in the government’s crosshairs as the Asian nation tries to meet a goal of carbon neutrality by 2060, with talk of a wider blitz that could end a decades-long expansion that made China the top producer of the metal. The country accounts for about 55% of global supply.

While a report of China’s plans to sell aluminum from its reserves sank prices on Tuesday, the metal is still up 13% this year amid concern that the crackdown will reduce availability of the metal. China made up just about all the increase in global aluminum output last month, so world production could fall if Chinese smelters were to apply the brakes, according to Commerzbank.

“On the supply side, the real important thing here is China has really started to enforce its laws, it is not issuing operating permits,” Alcoa CEO Roy Harvey said in a phone interview. “That is the game changer, because when they chose to start actually enforcing this need for operating permits is when we started to see some discipline come back into how much capacity was coming into the market.”

Harvey also said he continues to see a strong demand recovery across China and the rest of the world. That combined with China taking seriously its carbon footprint and environment goals make him “very optimistic” about the market. Shares of the Pittsburgh-based producer rose 10% at 10:26 a.m. in New York, on pace for the biggest gain in three weeks.

STATE RESERVES
The comments come as China mulls selling about 500 000 metric tons of the lightweight metal from its state reserves, according to a person with knowledge of the plan. Aluminum traded in London fell 2.3% following the news, but analysts at Citigroup Inc. said they viewed the decline as a buying opportunity. The selling is most likely to gradually occur over the next five years with only minimal impact on the aluminum market, analysts lead by Max Layton said in note Tuesday.

Harvey said China inventories that have built up over the pandemic will start to come down because there’s so much demand, while new supply coming online is somewhat limited. Aluminum prices may trade at higher annual averages this decade than last because of a more restrained trajectory for supply growth, with Chinese production potentially being capped at 45 million tons, Bloomberg Intelligence analyst Andrew Cosgrove said on in a report on Tuesday.

“You’re seeing a lot more discipline and a lot more predictability in how that supply is going to come on,” Harvey said. “They’re managing their economy to be more energy efficient, to be very focused on driving carbon out and moving toward net-zero, which is over many years but takes action now. It’s what tells me they’re going to be much more disciplined about how much capacity they’re bringing to market.”