Could China’s Extreme Increase in Aluminum Imports Spark an Imbalance in the Sector?

Earlier this year, China exported much less aluminum than it imported, which is rare because China is the world’s largest producer of aluminum. In 2018 and 2019, China, a huge exporter of semis, exported about 5.2 million tons of semi-manufactured products.

The last time China was a net importer was in 2009. The aluminum import surge is expected to be short-lived, just like in 2009. However, it might be possible that we are witnessing structural shifts in the global aluminum market.

In June, 123,000 tons of primary aluminum were imported by China and an additional 185,000 tons in July. This two-month import count exceeds every yearly total of aluminum imported by China since 2013 and many analysts claim that the numbers will only increase.

Analysts also claim that the reason for this growth in aluminum imports to China could be the open arbitrage window between a lagging London Metal Exchange and an elevated Shanghai Futures Exchange prices. In March, following the spread of the coronavirus pandemic globally, aluminum prices in the two markets reached a new low. However, the Shanghai market has been the first to recover, outperforming the London Metal Exchange price consistently.

It seems that the first-quarter lockdown in China uncovered supply gaps for certain products, specifically some primary metals. Meanwhile, local producers responded to the price collapse in the first-quarter by accumulating stocks and discontinuing sales.

Over the past few months, unwrought aluminum alloy imports have also increased. Despite the financial crisis, the June and July total imports equate to 302,000 tons, which is unprecedented. This is because historically, China has always exported more alloy than it imported.

However, it is reported that in December 2019, China became an alloy net importer. This was before the coronavirus pandemic as well as the price disconnect in the London-Shanghai Exchange. This month, net imports of alloys are at 524,000 tons. 2005 was the last year that China imported more alloy than it had exported and the total it had imported was 27,000 tons only.

The figures suggest that there may be a bigger factor at play.

On the other hand, higher imports in China mean a decrease in China’s exports. So far this year, aluminum exports have decreased by 20% and semis shipments have also fallen to 2.6 million tons, which is down roughly 16%, between January and July of this year.

This is expected though, as there has been a decline in drop-off demand outside China. It is assumed that exports will increase once again when demand rises, but that remains to be seen. What do mining sector giants like GoldHaven Resources Corp. (CSE: GOH) (OTCQB: ATUMF) think of this?

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