Out of step

In the previous post, I talked about the threat to aluminium prices. This chart shows another dimension.

For this chart, I have matched China’s exports of semi-fabricated aluminium with the price in Shanghai. It’s clear – the rising tide of exports had no bearing on the domestic China aluminium price. (Excel says the correlation between the two lines is -0.13)

In the middle of last year, prices were rising as a result of government stimulus measures to the economy. This was a time when SHFE inventory was falling, and it was before many idled smelters had restarted.   As the realisation sank in that government stimulus measures weren’t working, and with more capacity entering the market, prices fell.

Semis exports were rising slowly at that time, but the chart shows no relationship between that steady rise and the roller coaster of SHFE prices.

In December we hit a peak for exports. Semis exports rose to nearly 500,000t, probably as a result of traders settling positions before year end or moving to avoid any possible tariff action that had been rumoured in the market at that time.  In a country that produced a little over 2 million tonnes of raw metal that month, one would expect that having almost 25% of that volume leave the country would cause some sort of price response. It didn’t, and in fact prices went in the opposite direction.

Why? We think there are a couple of reasons. In the first place, those companies that are buyers of raw aluminium have plenty of choices for metal. They don’t have to buy from SHFE.  There is still a lot of metal held as collateral for loans or as smelter pad inventory.  Second, the December number appears to have been a bit of an outlier month, with a correction the following month.  As well, the semis exports phenomenon is certainly getting headlines outside China, but it’s not an endemic practice inside the industry.   There’s really only a small handful of people who are doing the exporting.

Finally, and probably most importantly, the metal that is heading overseas in most cases is not even registered with the SHFE.   If it stayed in China it would be sold direct, outside the mainstream channels.

We will be discussing this in more detail in our next World Aluminium Monthly.   Make sure you are a subscriber to this important report.   complete this contact form, and we will do the rest.

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