Hindalco to benefit from China scrapping export tax rebate: here's how

India’s Hindalco Industries Ltd. said on Monday that it expected China’s move to cancel tax rebates on exports of aluminium and copper would benefit the company, according to a Bloomberg report. 

Hindalco’s Managing Director Satish Pai said China's move was expected to reduce cheap imports. 

This is expected to ease pressure on India’s domestic producers of aluminium and copper. 

According to the report, aluminium makers in India have been hit by increased purchases of foil from China.

This has also prompted India’s government to propose anti-dumping duties on imports that captured 30% of the local market. 

The situation could have worsened if US President-elect Donald Trump raises tariffs on Chinese goods to boost US manufacturing and jobs, Pai told Bloomberg TV. 

Pai said that Hindalco was worried about the US raising tariffs on Chinese imports, which could have increased shipments to India. He added that Hindalco will now have “less low-cost Chinese exports to fight against”. 

Aluminium prices jump

On Friday, the aluminium contract on the London Metal Exchange jumped more than 8% after China’s move to cancel tax rebates. 

Though prices have given up some of the gains on Monday, the three-month contract on LME was still around 3% higher than Thursday’s close. 

China’s Finance Ministry said that it would cancel a 13% tax rebate on aluminium starting from 1 December.

ING Group’s analysts said in a note:

Chinese aluminium exports have surged over the past two decades. 

Hindalco’s investments

Pai told Bloomberg that the company was in the process of massive investments to boost India’s demand for metals. 

He said that Hindalco plans to invest $4 billion to $5 billion to boost capacity in aluminium and copper production to meet requirements from industries such as packaging, construction and electricity. 

Pai further said that China’s move shows that metal production in the country remained robust, which is likely to support global prices. 

The new US administration will also be beneficial for Hindalco’s US unit Novelis Inc., the world’s largest recycler of aluminium, as it produces metal in the US, Pai told Bloomberg.

Copper prices rebound

On Monday, copper prices rose after falling sharply last week due to a rising dollar. 

Prices on LME fell below the crucial $9,000 per ton mark for the first time last week since March. 

China’s move to cancel tax rebates benefited copper as well, but the increasing scarcity of red metal is also one of the factors. 

According to Commerzbank AG, the global copper market may face a supply deficit of 1 million tons next year.

The German bank further expects the capacity increases in China’s smelters to be utilised at only 75% next year. 

“A slowdown in activity is also becoming apparent at the current margin. A company specialising in satellite observation reports that the proportion of inactive Chinese copper smelters has risen by almost 5 percentage points to 15.5%,” Volkmar Baur, FX analyst at Commerzbank, said in a report. 

At the time of writing, the copper contract on LME was $8,992.50 per ton, up 0.2% from the previous close.