China’s aluminium imports may hit a decade high with increasing arbitrage opportunity post COVID-19 recovery

According to Reuters report, traders and analysts estimate a significant rise in China’s aluminium imports to hit the highest level in a decade, as an arbitrage opportunity created by demand recovery after coronavirus outbreak has made the aluminium import cheaper than sourcing the metal from domestic smelters.

China, the world’s top aluminium producer, usually has a little need to import primary aluminium. The country’s imports in 2019 totalled just over 75,000 tonnes versus output of 35 million tonnes. But this year in May alone, China’s aluminium imports are set to top 100,000 tonnes, as demand for aluminium in the rest of the world has collapsed, while metal consumption in China has recovered from the COVID-19 pandemic.

The draw is that Shanghai aluminium prices above RMB 13,000 ($1,800) per tonne has far exceeded the London Metal Exchange prices of US$ 1,500, opening an arbitrage that has made 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.

In April 2009, China had imported 440,000 tonnes of aluminium, including primary metal.

China’s primary aluminium imports in May 2020 may come in at 120,000 tonnes or more 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.

He also said that one-third of the total imports might be of Russian origin.

Other analysts estimate higher inflows. For instance, according to one trading source, more than 500,000 tonnes of primary aluminium is on the way to China, while another analyst thinks more than 700,000 tonnes may enter China during 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 per tonne on May 20.

“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 received lots of enquiries over the past one month, said Andryushin.

Argonaut Securities analyst Helen Lau said in a note that aluminium stocks in China would rise with more and more amount of imports, leading to the closing of arbitrage.