China’s aluminium prices tipped to rise as prices attractive

Chinese imports of primary aluminium ingot are likely to rise in coming months after the price of the metal fell on the global market, prompting end-users to buy, industry and trading sources said on Thursday.

The weak London Metal Exchange (LME) price is opening a rare arbitrage opportunity for Chinese investors to sell aluminium futures in Shanghai and buy on the LME, which may result in some imports, the sources said.

"We started selling more to Chinese end-users last week," said an Asian-based executive whose firm trades aluminium and also manufactures aluminium products in China. "China’s imports will probably rise in the coming two or three months, although the rise may not be very big."

Imports of primary aluminium fell 79 per cent in the first four months of 2015 compared with a year before.

Factories in the southern industrial province of Guangdong that use ingots to manufacture semi-finished aluminium products such as profiles and parts for vehicles were the main buyers at the moment, as they can import the metal almost duty-free to make goods for export, said the executive and a sales manager for a state-owned aluminium smelter.

For now, the profits that investors can make are not big.

Spot primary aluminium ingots have been offered at premiums of about US$105-$130 per tonne to Chinese buyers, down nearly two-third from January. This, coupled with weak cash LME prices, down more than 6 per cent since the beginning of the year, is making imports cheaper.

As prices in the global market have fallen, the spot price in China has held steady, quoted at about 13,000 yuan (US$2,096) on Thursday versus 12,900 yuan in early January, supported by restrictions on sales by large Chinese smelters. For imports, the cost has reached around 13,000 yuan a tonne this week, compared to about 16,000 yuan at the beginning of the year, according to traders.

Large smelters in China have limited sales of spot primary aluminium ingots since March to support domestic prices. Those smelters may cut sales further if investors increase arbitrage selling in futures contracts in Shanghai, especially as they produce most of the metal approved for the delivery of the contracts, traders and the smelter sales manager said.

Those smelters could use the extra ingots to manufacture their own semi-finished aluminium products, the smelter manager said.