China's Ministry of Finance's latest announcement to scrap export tax rebates on aluminium and copper products led to the biggest surge in aluminium prices in over a year, with prices jumping to over 8% at $2,730 per tonne.
The decision will be effective from Dec. 1, 2024, and could reduce Chinese aluminium exports, potentially tightening global supply and increasing prices. This stands positive for Indian aluminium players like Hindalco Industries Ltd., Vedanta Ltd., and National Aluminium Company Ltd.
What Are Chinese Export Tax Rebates?
China's export tax rebates are essentially government subsidies that reduce the tax burden on exported goods. It thereby made Chinese aluminium more competitive in international markets since the tax rebates allowed Chinese exporters to sell their aluminium at lower prices, making it more attractive to buyers overseas.
By cancelling these rebates, China is effectively making its aluminium exports less competitive.
Potential Impact
On the positive side, China scrapping its export tax rebates could lead to higher global aluminium prices, benefiting aluminium producers outside China. It could also lead to increased demand for other aluminium producing nations and could encourage domestic production and consumption of aluminium products in China.
On the negative end, higher prices can translate to a rise in costs for aluminium-consuming industries like auto, construction, and packaging. It could also lead to a potential supply shortage due to China's important role in the global supply of the metal.
How Do Indian Companies Benefit?
Three Indian companies could be significantly impacted by China's decision to cancel export tax rebates:
Hindalco Industries: The company is one of the largest aluminium producers in India and could benefit from increased global demand and potentially higher prices.
Vedanta Limited: Vedanta, through its subsidiary Vedanta Aluminium, is another major player in the Indian aluminium industry. It could also benefit from higher global prices and increased demand.
National Aluminium Company Limited (NALCO): NALCO, a government-owned company, could benefit from increased domestic demand for aluminium and potential export opportunities.
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