Impact of China's Reforms on the Aluminum Industry

China will soon submit proposals to deepen its energy pricing reform, said Wang Yuming, deputy director of the National Energy Agency. This raises the question: Will China's pricing reform be a blessing or a disaster for the aluminum industry in China and the world?

The focus of this process will be on the transition from a controlled central pricing mechanism to a more market-based approach, Wang Yumin said. And given the volume of aluminum production at Chinese factories, this step will not go unnoticed in the global aluminum market.

Aluminum smelters should certainly win if the energy pricing reform is underway. The reform will reduce electricity tariffs by creating a more competitive market. Thus, electricity costs, which account for more than 30 percent of total aluminum smelting costs, could plummet, industry experts suggest.

While the news is good news for aluminum companies, they warn that the price decline could trigger a restart of idle facilities, which will negatively affect the prices of aluminum products. 2014 was a difficult year for aluminum smelters in China, as chronic overcapacity drove many into unprofitable businesses.

Meanwhile, China's aluminum exports rose about 19 percent last year, a trend that analysts say will continue in 2015, driven by low domestic prices compared to international markets.