We have a curious situation in the global aluminium market which has made the prediction of the metal prices quite difficult in recent times. We have a situation where there is a reduction in the global production of aluminium and little demand in the rest of the world while in China, we have a situation where there is a large supply but there is an even larger demand which has helped to keep the prices comparatively higher. There are several reasons why the demand for aluminium is very high in China:
- Huge Growth and Urbanisation in China – The growth story of China is something that is well known all over the world. With its large size, population and generally less developed economy, the potential for growth is enormous and the Communist government there has ensured that they make full use of this potential. So, we see a lot of cities come up in China and we also see the housing industry take off which increases the consumption of aluminium both for construction and also for daily use. This has caused the prediction models for the metal prices to show a gradual increase over the years though globally, there is a fall in production.
- The government in China is very clear about what it wants to achieve and they are masters in planning for the future. They have huge programs for all fields of development including infrastructure, space, housing etc. and they have invested massively into these all these programs and they have sophisticated mechanisms by which they predict the metal prices and are able to control their supply and demand in aluminium.
- The smelters in China, though very competitive, do not face price pressures as in the rest of the world as they are strongly supported by the government who would like to keep them running so that they can supply the growing demand for aluminium in China.
- Since the growth in China has been concentrated in specific regions, we have a lot of people moving from the rural areas to the urban areas and in order to meet the social order and status, they need to stack their houses with specific interiors, a large part of which is made of aluminium. This has in turn increased the per capita consumption of aluminium and has contributed to the analysts predicting higher prices for the metal.
- The exports from China of semi-fabricated products made of aluminium has been booming over the last decade or so. It is well known that China exports a huge range of stuff ranging from the smallest to the largest to different parts of the world where they are preferred for their low prices and decent quality and aluminium being an important raw material for these products, the demand for the metal has grown manifold.
- The Chinese government in itself follows a policy of encouraging the use of the metals like aluminium and the smelters where they are produced as the methods of production followed in China are different from the rest of the world. The analysts that use prediction of metal prices to gauge the cost of various metal based products get stumped when doing so for Chinese products due to the fact that in China, the smelters use electricity from coal while in other parts of the world, they use hydroelectricity. This coal is sourced inland and is hence very cheap and so China is able to achieve the double whammy of increased coal consumption and aluminium consumption.
- World class technology has ensured that the smelters are able to meet the huge internal demand for aluminium which builds a healthy cycle as better prices In China helps to boost the consumption which in terms increases the demand and encourages further supply.
China continues to be one of the largest consumers of aluminium and a variety of other commodities and with its government setting its eyes on higher targets in terms of economic, fiscal and all round growth, there is no end to the growing demand for such commodities and this could help the rest of the world as well if it plans to increase the imports of aluminium to feed it growing infrastructure and other needs. This is why the predictions for the metal prices are looking sky high at the moment.