China’s race to restore normality has opened
up a rare opportunity to profit from shipping aluminum into the
country, which is typically burdened by excess supply of the
metal.
The theoretical margin from importing aluminum into China
jumped to the highest level since 2016, according to Bloomberg
calculations based on local spot prices and the cost of the
metal in Japan.
Chinese prices were as much as $239 lower as recently as
March but have taken off in the ensuing weeks and were $140
higher last week. The dislocation is being driven by China
emerging out of lockdown sooner than the rest of the world,
kick-starting demand while it remains suppressed elsewhere,
according to Wang Rong, an analyst with Guotai Junan Futures Co.
in Shanghai.
“The rebound in aluminum demand in China is pretty strong
as manufacturers are catching up on orders hindered by the
virus,” Wang said by phone. “In the meantime, consumption of the
metal is severely restrained overseas.”
China produces half of the world’s aluminum and has
struggled in recent years with domestic overcapacity. It’s been
a net exporter of aluminum products since 2001, with domestic
metal prices averaging about $56 less than overseas supplies
over the past year.
It imported a record 1.5 million tons of primary aluminum
in 2009 as a massive government stimulus plan to cushion against
the global financial crisis drove local prices to a steep
premium.
Whether the recent reversal in the relationship results in
an increase in imports will depend on whether traders can
overcome any logistical constraints in getting the product to
the country, said Wang.
The blow out in the relative value of Chinese aluminum has
coincided with a declined of about 40% in inventories monitored
by the Shanghai Futures Exchange since late March. During the
same period, stockpiles in the London Metal Exchange’s
warehouses in Asia, mostly in Malaysia, have risen more than
40%.
(Bloomberg)