Aluminum And Steel Could Peak In China As Coal Disappear
The whole world knows that China is the largest producer and consumer of aluminium and steel products. But now the aluminium and steel industry in China will be at its peak. But why will this happen? The main reason is to reduce the consumption of coal.
Yes, like the other developed countries, China also pays attention to the environment. And they don't want to increase coal consumption. They want to reduce the consumption and in the future there will be no coal in China.
But how can the aluminium and steel industry make it to the summit? It's a big question to ask. Why are the coal and aluminium industries linked? Today we are here to discuss this scenario. Why China will become the top marketer, producer and consumer of aluminium and steel. The other big question is why they won't use coal. And how coal will also affect the aluminium market.
Current value of aluminium and steel
When it comes to the list of aluminium producers, the first name in that list is China. Many other economies also produce aluminium and steel. But China is the leader in these commodities.
It plays a big role in its GDP growth (Gross Domestic Product) and helps it to win the trade war. To understand the market situation, you need to know about the current status of the market. Below are the details.
According to London Metal Exchange, the price of aluminium in the global market is 2508.50 per tonne (US metric tonne). This price is increasing in this market. However, it is not higher than the SHFE prices. But still, this price and market are important.
The high market volatility and liquidity are always there to affect the commodity market. One million tonnes of aluminium is traded and exported here on the LME.
Shanghai Futures Exchange is another option for foreign trade of metals. Here you will see a big difference between the price of aluminium compared to the LME prices. You don't need to be an economist to understand this difference. China is also doing the international trade for aluminium export here in this market. The aluminium is traded in this market at 2954 per tonne.
Aluminium in China's domestic market
After the global market, let's now jump to China's domestic metal market. Here we will see how the global economy is affected by the domestic market. How China manufactures aluminium products and how this affects the Chinese economy. Used machinery, Chinese exports, market sentiment, trade policies, price forecasts, the Chinese economy, etc. will be talked about.
China is one of the top exporters of aluminium products. But more than export and global trade, China consumes aluminium domestically. China tops the list of exporters. It is the top exporter after Germany with 24 billion in 2020. Germany is the second largest exporter of aluminium to China with 14 billion in aluminium exports.
China imports a very small amount of aluminium. This is because it produces more than 50% of the aluminium itself. So there is no need to import aluminium from the rest of the world. However, as the aluminium market is growing year by year, China has started importing primary aluminium.
China imports primary aluminium from some countries. But most probably its production is higher than any other country. In June 2020, it imported 123000 tonnes of primary aluminium.
China is not only the largest consumer but also the largest producer. It has more than 50% of the total global production. According to research, the total global aluminium production was around 64000 tonnes in 2018. And China alone produced 35500 tonnes of aluminium.
The demand growth of aluminium in China is very high. Therefore, most of the aluminium from domestic production is consumed in China. China attaches great importance to the trade surplus. China is the largest consumer of aluminium. It also exports aluminium to some developing countries.
The domestic demand for aluminium is increasing day by day as more and more industrial plants are being set up. Therefore, the metal is widely traded on the metal exchange.
Influence of LME & SHFE
There is an influence of LME aluminium price and SHFE aluminium price on the overall global price. The overall aluminium market is influenced by these two different trading markets. It doesn't matter which market you use to trade aluminium as a commodity. But you will find that the LME and SHFE prices have a big impact.
When traders buy a commodity, stock, bond, currency pair, etc. at a low price in one market and then sell it at a high price in the other market, it is called arbitrage trading. Due to LME & SHFE, a huge difference can be seen in the prices of both the financial markets and most of the forex traders out there use this functionality to make more money.
Growth of aluminium prices in the market
To see the overall growth of aluminium market and prices in China. Then follow the figures of the growth of a few last years.
In 2021, the rate is 2500. However, in the early months of the year, it was not so. In some early months of the year, there was a growth of more than 20%.
Last year the price was very low. But now this year the price is at its peak. However, last year it dropped from 1800 to 1600 because of the pandemic. Aluminium price dropped very much last year, from 1800 to 1600.
A year before the pandemic, there was a lot of growth in this market. Aluminium price was at 1600 and jumped to 1800 at the end of the year.
Experts take a close look at the aluminium market
Let's take a look at what experts are saying about this topic. Why the aluminium market is growing and why coal consumption will be reduced to zero.
The decision of coal withdrawal is due to the environmental issues that have arisen in the world. China is also one of the largest consumers of coal. And the aluminium industry is powered by the electricity generated from coal.
Now the electricity is being consumed, which will push up the aluminium prices. According to experts, the withdrawal of coil use will directly increase the price of aluminium.
Commodity Market Analytics
The MD (Managing Director) of Commodity Market Analytics, Dan Smith stated that coal consumption in China will be reduced. By eliminating the use of coal in industrial plants.
It will become more expensive for the country to produce aluminium and steel. This move by China is considered to be environment friendly. Therefore, this decision will be very encouraging for the market. The prediction is about the increased rate, demand and supply of aluminium.
Summary - Aluminium And Steel Future
The direct link between coal and the aluminium industry in China is due to the use of coal in the aluminium production industry. Coal is used as a fuel in the industry. However, the use of coal generates a large amount of pollution.
For this reason, aluminium production will be affected if the main fuel is changed from coal to direct electric power. This will greatly change both the price and the amount of production.
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