Key Takeaways:
A conflict in the Middle East that has choked off the Strait of Hormuz sent London aluminum prices to a four-year high in April, disrupting global supply chains and creating a historic export window for China’s metal producers.
"Overseas premium has climbed to an 'unbelievable' level," Mo Xinda, director of the light metals department at the China Nonferrous Metals Industry Association, said at an industry conference, noting the price gap between the Shanghai and London exchanges has widened to its most extreme since 2022.
The supply shock from the Persian Gulf, a region accounting for about 9% of global aluminum production, has been compounded by strong demand for clean energy products. China’s copper cable exports jumped 36% year-over-year in March, while solar cell exports surged 80% and electric vehicle exports rose 53%. The rally is broad, with LME copper also closing up 1.17% at $13,100.5 per tonne on May 5, according to exchange data.
This surge in overseas orders is a significant boon for Chinese manufacturers, filling a void left by softer domestic demand and solidifying the nation's dominant role in the global clean energy supply chain. The next key indicator will be China's April trade data, scheduled for release this week.
The effective closure of the Strait of Hormuz delivered a direct blow to aluminum smelters in the Persian Gulf, causing a sharp drop in output. With China maintaining export tariffs on primary aluminum to protect its domestic supply, the international market felt the full force of the disruption, pushing LME prices to their highest since 2022.
According to a Bloomberg survey of six traders, Chinese aluminum processors have seen a significant increase in overseas orders since late March. Demand is particularly urgent for aluminum products used in electrical grids and automobiles. Some hot-rolling mills have their order books filled through June, with leading products including materials for electric vehicles, battery cells, and cooling plates for energy storage and data centers.
The trend extends beyond aluminum. High fossil fuel prices are accelerating the global shift to renewables, underpinning demand for Chinese exports. "Higher fossil energy prices help maintain electric vehicle export intensity, which in turn will support copper demand in the coming months," consulting firm Wood Mackenzie noted in a recent report.
This dynamic is reflected across base metals. While domestic zinc inventories in China remain high, cost support from declining treatment charges and the potential for exports are providing a floor for prices, SMM News reported. In the copper market, logistical hindrances for imported material and maintenance at domestic smelters have tightened spot supply, holding premiums firm, per SMM.
"Chinese manufacturers are already leaders in cost, scale, and supply chain integration," said Xinyi Shen, a senior advisor at the Centre for Research on Energy and Clean Air (CREA). "When global demand accelerates suddenly, they are in the best position to respond quickly."
However, a potential headwind remains in the form of policy adjustments. Both solar cells and lithium-ion batteries have been affected by the cancellation of export tax rebates, and the sustainability of their export growth may depend on future policy decisions.
This article is for informational purposes only and does not constitute investment advice.
