Government subsidy set to help aluminium demand

Written by Paul Adkins

Last week the National Development and Reform Commission announced a new subsidy program.   Effective June 1st, buyers of TVs and Air Conditioners will receive a subsidy of RMB400 when they purchase.

There’s a small amount of aluminium in a TV, but a lot more in air conditioners.   It’s difficult to calculate how much extra aluminium will be consumed as a result of this subsidy, which will run for one year.   Apart from not knowing how many extra units might be sold, it also depends on the size of the A/C unit and whether copper has been used inside the unit.

However for most home applications, the tubing inside the air conditioner will be made from aluminium, as will the fins that radiate from the tubes – the heat exchanger part of the appliance.

This comes at a good time, apart from the fact that we are entering Summer.   Metal prices are lagging (though still higher than the LME), and the forward price has recently moved into backwardation.

With new metal coming into the market from new production capacity, plus the arbitrage window being theoretically open at the moment, the market was getting more unhealthy by the week.   Perhaps this announcement will send a breath of conditioned air through.

The NDRC expects to announce further subsidies for white goods in the coming weeks.   Refrigerators are another consumer of aluminium, for the same purpose as in air conditioners.

 

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