China’s aluminum semis exports soared 43.7% year-on-year January-May

China’s aluminum semis exports soared 43.7% year-on-year January-May, despite high SHFE/LME aluminum price ratio in Q2. What’s behind the sustainable growth?

SMM analyzes this divergence by export model.

China’s exports of aluminum semis exports can be divided into “normal” and “masked” exports.

Normal exports of high-end aluminum semis are mostly under long-term contracts and priced as the LME aluminum price + processing fees. High processing fees mean that the rise in SHFE/LME aluminum price ratio has little impact on short term profits. Such exports thus hold largely stable.

Exports of low-end aluminum semis are priced as the SMM aluminum price + processing fees. A growing number of Chinese firms prefer this model, which insulates their margins from the changes in SHFE/LME aluminum price ratio.

Both traders and processors engage in masked exports. Traders, who gain profit when the SHFE/LME aluminum price ratio is low, have little interest in exporting at the current high ratio. Processors that engage in masked exports, on the other hand, can cover losses triggered by a rise in the SHFE/LME aluminum price ratio and falling overseas aluminum premiums by hiking processing fees.

China exported 360,000 tonnes of aluminum semis in May, up 34.1% from a year ago, customs data showed. Year-to-date exports through May hit 1.81 million tonnes.