What’s behind sudden record high aluminium premiums in China? SMM reports

<p>Aluminium prices in China&rsquo;s spot market turned from discounts into an all-time high premium of 570 yuan/tonne over SHFE front-month aluminium recently and SHFE 1611 aluminium ended last week up over 5 per cent. <br /><br /><img style="vertical-align: middle; display: block; margin-left: auto; margin-right: auto;" src="http://www.alcircle.com/uploads/images/SMM%201.png" alt="News" width="480" height="420" /><br /><br />What caused the sudden change?<br /><br />It all boils down to tightening transport, SMM understands.&nbsp; Most smelters ship aluminium ingots by train rather than by truck out of cost considerations. Hence, railway transport capacity has always been tight in Xinjiang, one of China&rsquo;s most important aluminium producing regions. <br /><br />China&rsquo;s recent crackdowns on vehicle overloading greatly pushed up truck freight charges. Some smelters thus turned to train for shipments, leaving railway traffic in Xinjiang in severe jam. Moreover, some rail lines in Xinjiang are under maintenance, exacerbating already jammed traffic.&nbsp;&nbsp; &nbsp;<br /><br />Tough crackdowns on vehicle overloading hampered aluminium ingot shipments from northwest China, reducing arrivals into east and south China. <br /><br />{googleAdsense}<br /><br />SMM learned aluminium smelters in Inner Mongolia are renegotiating freight charges with logistic firms after big increases in freight charges, with transport contracts signed earlier delayed from executing. Aluminium ingots, originally due to arrive in east China before the Chinese National Day holiday (October 1-7), will not arrive until after the holiday.&nbsp; &nbsp;<br /><br />Another important reason behind surging premiums and prices was improved downstream consumption, SMM added. Downstream producers stockpiled goods actively for upcoming holiday. &nbsp;<br /><br />SMM statistics showed aluminium ingot stocks in China&rsquo;s five major markets fell 23,000 tonnes as of September 22 compared with September 19. SMM sees SHFE 1611 aluminium, the most active one, advancing further to challenge previous high of 12,655 yuan/tonne. <br /><br />However, aluminium prices might face downward pressure after the weeklong holiday due to profit taking at highs and pressure from smelters for hedging purpose, SMM warned.&nbsp;</p>