China’s cancelation of tax rebates leads to surge in aluminum prices

After China announced the cancelation of the tax rebate on aluminum, effective from December 1 this year, the London Metal Exchange (LME) aluminum futures hiked by as much as 8.5% last Friday since the market expected a large amount of China’s aluminum would be curbed to export to other countries.

Market participants foresaw higher aluminum prices and lower exports from China for the short-term outlook. The global aluminum market would experience a substantial change. Countries that have long-term relied on China’s aluminum would have to find alternative supply, while they would also face a problem, limited production capacity in other regions outside China.

China, the world-largest aluminum producer, produced approximately 40 million tons of aluminum in 2023, accounting for more than 50% of the total global output. The global aluminum market was expected to return to deficit in 2026.

China’s cancellation of tax rebates on aluminum is likely to have a series of chain effects, including higher raw materials costs and changes in global trade dynamics. Industries such as the automotive, construction, and packaging sectors would also be impacted.