Displacement
These product exports can't directly replace the primary metal and alloy units lost in the Gulf. Instead, they act to suppress demand for unwrought metal by substituting for it further along the processing chain.
And therein lies the rub.
The result is a relocation of fabricating activity from the rest of the world to China.
China's semis exports have long been a bone of contention with Western policymakers and many countries have hit back with steep anti-dumping tariffs across a wide spectrum of products.
Partly in response to such concerns, Beijing removed a 13% value-added tax (VAT) export rebate on products, effective December 2024.
Export volumes dropped by 18% to 890,000 tons last year as Chinese processors pivoted to the domestic market.
But the Iran war has changed the dynamic again, reinvigorating outbound flows thanks to the combination of a structurally stressed Western supply chain and a loose internal market.
Cost of comfort
Chinese aluminium demand has been flatlining over the first half of 2026, according to analysts at Citi. The bank's end-use tracker index fell by 0.4% year-on-year, reflecting weakness in traditional end-use sectors, particularly construction.
Primary aluminium production, meanwhile, grew by 2.2% over the same period, according to the International Aluminium Institute. The country's smelters are now operating close to or even slightly above Beijing's mandated 45-million-ton-per-year capacity cap.
Stocks registered with the Shanghai Futures Exchange have been sliding in recent weeks but, at 422,097 tons, are still higher than London Metal Exchange inventory of 358,000 tons, including metal in off-warrant storage.
China clearly has the capacity to maintain exports at elevated levels for a while yet.
This has comforted the LME market, where aluminium has unwound most of its war premium. The three-month price CMAL3 has pulled back from a four-year high of $3,787.50 per ton at the start of June to $3,270.00, a mere $100 or so higher than where it was before the U.S. and Israel attacked Iran on February 28.
However, the longer the West needs Chinese products to rebalance, the greater the potential long-term cost for Western manufacturers of semi-finished products.
XLB•
