China’s imports of aluminium are about to hit their highest levels in a decade, traders and analysts said, as an arbitrage opportunity created by demand recovery after its coronavirus outbreak makes it cheaper to buy metal from outside the country.
China, the world’s top producer of the metal used in everything from cars to cans, normally has little need to import primary aluminium, made from alumina rather than scrap. Imports for all of 2019 totalled just over 75,000 tonnes versus output of 35 million tonnes.
This year, though, as demand in the rest of the world collapses and metals consumption in China recovers from coronavirus-induced shock, its aluminium imports are set to top 100,000 tonnes in May alone.
The draw is that Shanghai aluminium prices above 13,000 yuan ($1,800) a tonne far exceed London Metal Exchange prices of $1,500, opening an arbitrage that has Chinese buyers looking overseas for bargains.
“The last time we saw anything like this was in 2009, but that was an artificial government stimulus to the industry, not natural market forces,” said Paul Adkins, managing director of consultancy AZ China Ltd.
China’s monthly record for aluminium imports - including primary metal - was 440,000 tonnes in April 2009.
China could import 120,000 tonnes or more of primary aluminium in May and the same in June, if the arbitrage persists at least in part due to post-outbreak economic stimulus, said Roman Andryushin, head of sales and marketing at Russian aluminium giant United Company Rusal.
Around a third of this might be of Russian origin, he said.
Others put the inflows higher. One trading source said more than 500,000 tonnes is on its way to China, and another analyst, who declined to be named, thinks more than 700,000 tonnes could enter over May-July.
“We observe a situation now similar to (2009) when both benchmarks fell due to economic reasons but the pendulum swung in the favour of China first,” Andryushin said.
As Chinese prices recovered, the spread between Shanghai and London cash aluminium contracts hit a six-year high of around $250 a tonne on May 20.
Aluminium was the top performer among Shanghai base metals in April and May. An open arbitrage also lifted imports of copper and tin in April, although China is typically a big importer of most other metals.
“The domestic price is too high,” said a Chinese aluminium buyer, who said she approached Rusal for metal and was offered it for LME June aluminium plus $100 a tonne.
Rusal had lots of enquiries from China over the past month, Andryushin said, with metal being shipped by both producers and traders, mostly from storage housing Russian, Indian and Middle Eastern aluminium. The LME has approved warehouses in South Korea and Malaysia, although it was not immediately clear metal is moving from those sites.
Sources at trader and miner Glencore, a key offtaker of Rusal aluminium, and commodity trader Trafigura said their firms were involved in the imports. Both companies declined to comment..
Sellers need to be able to act quickly, though, to book a profit.
“The key point was near-term availability. Our customers needed to lock in the arbitrage,” said a source at a trading house that received enquiries from Chinese buyers but did not have enough metal to do any deals.
As aluminium flows in, Chinese stocks may rise and the rally in Shanghai prices “may peter out”, closing the arbitrage, Argonaut Securities analyst Helen Lau said in a note, without providing a time frame.
Source:- Reuters.com
