Recovery in China’s metal market resulting in incessant rise in unwrought aluminium imports may lead to polarisation

Incessant increase in China’s unwrought aluminium imports indicates a rare inversion in normal trade patterns. In August 2020, China imported 393,000 tonnes of primary aluminium and unwrought alloy combined, close to the previous record of 394,000 tonnes in April 2009. It is no coincidence that global financial crisis is the common cause behind the surge in China’s aluminium imports. Last time the global aluminium demand experienced a sort of hit, while now COVID-19 pandemic is the reason.

Now, as then, China is recovering faster than the rest of the world. While output outside China is rapidly sliding, China’s smelters are responding by lifting production. So, if the history is repeating, it is likely to lead to a further polarisation of the global aluminium market into two parallel universes – China and the rest of the world.

China’s primary aluminium imports rose to 248,000 tonnes in August from July’s 185,000 tonnes. Cumulative imports this year have reached 595,000 tonnes, compared with 1.45 million tonnes in 2009, the only point of historical comparison.

However, the key difference between then and now is the concurrent increase in unwrought aluminium alloy imports into China. The total imports of China’s unwrought aluminium alloy in eight months of the year stood at 653,000 tonnes, whereas China in 2009 remained as the net exporter of this form of aluminium.

So, as the flows of both types of aluminium have been determined first and foremost by an import-positive arbitrage window between London and Shanghai markets, the step-change in alloy trade may be more structural.

Alloy is majorly produced from scrap metal, and so it is no coincidence that imports of alloys are rising due to China’s lower imports of scrap because of restrictions on impure secondary aluminium imports.

Imports of primary aluminium are expected to wane as the arbitrage window closes, but imports of alloys are likely to stay above historical norms in the near future.