Oil Makes A New High

In the China market, there has been an increasing focus on the carbon neutrality goal, and investors appear to be bullish on the demand for metals that have an exposure to the energy transition, such as copper and aluminum. Discussions are heating up ahead of China's Two Sessions in early March, and our China economist has looked at the top 5 priorities ahead of the gathering, including ensuring net zero CO2 emissions by 2060. This week, the State Council has called for an effort to be made to work towards green, low carbon, and circular development.

However, the journey to net-zero could also have implications for the aluminum supply side. Recently, the local authority in China Inner Mongolia came up with a series of changes to local electricity rates, impacting several industries, including aluminum smelting, zinc smelting and ferrous alloys etc. The region accounts for around 9% of Chinese total aluminum capacity. The implication is that it would be impossible to see further capacity growth from the region. More broadly, this reinforces the expectation that China will stick to the capacity ceiling put forward a few years ago. Total capacity is inching towards the ceiling, and we will only see capacity migration within the country, with capacity moving to the southwest.

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