According to today’s NBS data, aluminum production in China in May was 2.83Mt, with an increase of 4.2% YoY. But we think that number is seriously understated. According to us, May production was around 3.15Mt. And we are on the conservative side. Some of our Chinese competitors are saying that May was 3.17 or 3.18 million tons.
The difference in one month between the official numbers and the real numbers is equal to around 4 million tons on an annual basis. That sort of difference makes a huge difference for people sitting outside China, perhaps in the WTO or in President Trump’s Trade headquarters.
We are not suggesting that the Chinese authorities have deliberately understated the production numbers in order to hoodwink these forces, but it can have the same outcome if those collecting the data in the USA and elsewhere don’t understand what’s going on in the numbers.
There are many possibilities for NBS to under-report the production number. It might be because of data collection errors, or perhaps some smelters did not report their production numbers. We think it is because the authorities are no longer recognising so-called illegal smelters.
We should notice the increased aluminum production in May comes at a time when edicts about cutting illegal capacity were floating around.
On April 17th, led by a document released from Xinjiang Changji Government to control three smelters illegal capacity, four government departments issued a notice to take special actions on controlling illegal aluminum projects.
Since those notices were released, we did not see much capacity cut at all. Although there were two smelters shut down in May, it was because of the high production cost. In May we have seen around 20Kt new and 175Kt restart capacity, which was higher than the shut down or idled capacity.
In June, there are at least four smelters have the plan to start. Typically smelters can only turn on 2 to 4 pots per day. The output increase will happen gradually.
We expect to see the aluminum production will remain flat or even have a slight drop in June compared to May.