China aluminium imports fail to pick up despite rise in domestic prices

Chinese aluminium import interest remained lackluster despite a rise in domestic aluminium prices over recent weeks, as the spread between import and domestic metal prices has stayed wide, market participants said Wednesday, last week.

The London Metal Exchange official cash price closed at $1,575.00-1,575.50/mt on February 23. At $1,575/mt, with the current $100-110/mt Asia premiums, and taking into consideration 17 per cent VAT and port charges, the delivered price to China would equate to Yuan 12,897-12,974/mt ($1,975-1,987/mt).

The front-month aluminium contract on the Shanghai Futures Exchange closed at Yuan 11,150/mt on Tuesday, up from Yuan 10,985/mt a week before, and also from Yuan 10,830/mt a month ago.

“There’s still around a $300 spread between import and domestic prices, so it’s definitely not worth importing … it’s cheaper to buy domestic,” a Shanghai-based trader said. “There’s also plenty of domestic stockpile, around 800,000 mt, and many downstream semis plants have still not fully returned from the new year holidays, so it’s very slow,” he added.

A weaker yuan, which has made imports more expensive, has also dampened Chinese buy interest, sources said. The Chinese yuan had weakened to 6.5302 against the US dollar Wednesday morning, compared with around 6.4 in December 2015.

Some market sources said Chinese buyers may be interested in imports again, if the price spread narrows to $50-$100, especially those whose customers have import metal requirements, as well as those who want to take advantage of US dollar financing. But others disagreed, citing low consumer profit margins.

“The Chinese are also more eager to export than import, with so much metal around. But as there’s still a 15% export tax, they are likely to continue focusing on downstream exports this year than metal imports,” a Beijing-based trader said.

A Hebei consumer source agreed, adding: “Our profit margins are very low, maybe if the spread was Yuan 50-100 then we will consider importing again.”

Meanwhile, the rise in domestic aluminium prices is expected to continue in the first quarter, but upward movement will be limited.

Smelter cuts and restocking activity ahead of the Lunar New Year holidays in early February had supported metal prices, but fundamentally, the market remains in excess supply, sources said. Smelters who had reduced run rates earlier are now expected to restart idled capacity in the near term should domestic metal prices edge higher to around Yuan 12,000/mt, smelters, traders and consumers agreed.

It is hence unlikely for prices to rebound further to above Yuan 13,000/mt, as the restarts will again add pressure to the market, sources added.