Chinese exports of unwrought aluminium and products surged to the second-highest on record in July
Trump's aluminium tariffs on China appear to backfire
It's probably not what US President Donald Trump had in mind when imposing tariffs on aluminium imports, but it looks likely that some of the big winners from the 10 per cent import tax will be China's producers.
While Chinese aluminium companies now face the same tariff obstacle as other exporters to the United States, they appear better placed to benefit from some of the (most likely) unintended consequences of the Trump administration's policies.
The Trump tariffs and measures against major Russian producer Rusal, along with a strike at Alcoa's alumina and bauxite operations in Western Australia are combining to roil aluminium markets.
Throw in Mr Trump's move to double the tariff on aluminium from Turkey and the result is a market that was most likely in a small supply deficit this year is now more concerned about the risk of supply disruptions.
Rusal, which produced 1.87 million tonnes of aluminium in the first half, is a major supplier not only to the US, but also to other countries around the world.
It is reportedly concerned that it will have to halt production or stockpile output if an agreement on US sanctions against it cannot be reached.
The Trump administration has given Rusal's US customers until October 23 to end their business with the Russian company.
If no deal is reached to extend, or amend, that deadline, the aluminium market is likely to face severe disruptions as Rusal's output is blocked from world markets.
The Trump tariffs are also hurting the US aluminium producers they are designed to help, with Alcoa asking for an exemption from the tariffs because it imports essential aluminium products from its facilities in Canada.
Alcoa said in July it will incur as much as $14 million (Dh51m) a month in extra expenses, mainly from tariffs levied on aluminium imported from Canada, its biggest supplier.
If Rusal is largely blocked from the global aluminium market, and if strikes do translate into supply disruptions, there are very few producers currently able to take advantage.
China's aluminium producers do have spare capacity, and assuming they can work their way around some of the pollution measures, they are able to make more of the lightweight metal, used in products such as beverage cans and motor cars.
Global aluminium output was 5.321mt in June, down 2.2 per cent from the previous month, according to figures released on July 20 by the International Aluminium Institute.
However, China's aluminium output, which is more than half of the global total, ramped up in June to 2.83mt, up 1.6 per cent from the prior month, according to official figures.
Daily production in June was about 94,000 tonnes, the second-highest on record, according to Reuters calculations based on data available from the National Bureau of Statistics.
China's smelters are responding to rising domestic prices, with benchmark Shanghai futures up 5 per cent from the recent low in mid-July to the close of 14,520 yuan (Dh7,748) a tonne on August 10.
While the US tariffs on aluminium imports have only been in effect since the start of June, they don't appear to be hurting Chinese exports as yet.
Exports of unwrought aluminium and products surged to the second-highest on record in July, coming in at 519,000 tonnes, according to preliminary trade data released on August 8.
This was up 18 per cent from the same month in 2017, and year-to-date exports are 13.6 per cent higher than for the first seven months last year.
This data doesn't suggest the Chinese aluminium sector is struggling, the main issue for them will be attempting to maximise output while complying with a new round of pollution restrictions.
However, newer and more efficient smelters may help China produce more aluminium at a lower cost, while also reducing the emissions intensity per unit.
When Mr Trump launched his initial steel and aluminium tariffs he tweeted that "trade wars are good, and easy to win".
For aluminium, his actions have so far disrupted supply chains, angered the top producer in his own country, increased manufacturing costs in the US and elsewhere, and possibly made his number one target, China, the main beneficiary.