Commodity traders are racing to make a rare profit shipping aluminum out of China as war in Ukraine creates flash shortages for European manufacturers who typically rely on Russian supplies.

At least 20,000 tons of aluminum ingots have been exported out of the Shanghai free trade zone in recent weeks and are heading for customers in Europe, according to traders familiar with the matter.

The unusual shipments from the world’s biggest consuming nation were made possible by a widening gap between futures prices in London and Shanghai. This has been compounded by the increase in the extra premiums buyers pay to get spot metal at ports like Rotterdam.


Even before Russia’s invasion of Ukraine, European buyers faced a growing aluminum shortage, with soaring energy costs over the winter forcing producers in the region to cut production. . The risk of further smelter cuts rises with electricity prices rising again in the wake of the attack, while Russian flows are throttled as shipping giants refuse to call at key ports such as Saint Petersburg and Novorossiysk.

It is a dramatic escalation of a global supply squeeze that is hitting European buyers the hardest as aluminum is pushed to record highs. Additionally, with global inventories low, analysts and traders say the unusual flow of metals from China to Europe will only bring short-term relief as shipments from Russia are hampered. Three-month delivery prices rose 4.1% to a new all-time high of $3,867 a tonne on the London Metal Exchange on Friday, and further price increases could be on the cards as the shortage continues. gets worse.

“So far the market is pricing in a short-term disruption, while the world is telling us it will most likely be a long-term disruption,” said Eoin Dinsmore, head of metals demand at base and market research at CRU Group. telephone from London. “This is a major shock to aluminum supply, at a time when the market is literally the tightest it has ever been.”


With China more comfortably supplied at the moment, it has also become profitable to export copper to Asian markets, while shipping zinc may soon be commercially attractive as well, Dinsmore said. This is striking because China is a large net importer of both metals, and exports are typically only seen during times of extreme overseas supply stress.

Chinese smelters have an incentive to ship copper as the arbitrage window opens, said Ji Xianfei, an analyst at Guotai Junan Futures Co. in Shanghai. It applies to custom work activities, where imported raw materials are processed before being exported tax-free.


Even in aluminum, where China has historically produced far more than it consumes, it is exceedingly rare for commodity-grade ingots to be shipped out of the country. This is mainly because Beijing imposes a 15% tariff on exports to discourage domestic smelters from producing more energy-intensive metal than the country needs.

Currently, the only aluminum that can be shipped profitably are cargoes originally imported from overseas that are still stored in China’s import-bonded areas, exempting them from the export tariff, according to reports. traders familiar with the agreements. There are currently about 110,000 tons of aluminum in bonded warehouses in Shanghai and about 27,000 tons in the Guangdong bonded area, according to industry estimates.

Still, with aluminum prices hitting new highs in London and Shanghai prices rallying much less rapidly, trading looks more attractive day by day, and traders and analysts expect to see more flow. exceptional amount of metals from east to west. A similar dynamic is also playing out at Port Klang in Malaysia, with traders chartering huge bulk carrier vessels to transport excess aluminum stocks to Europe.


Despite exorbitant global freight rates, the best hope of supply relief for European buyers comes from stocks 9,700 kilometers away. While this reflects how depleted local stocks are, traders and analysts are warning that the export window could soon close, with Asian stocks also at historic lows. This increases the potential for European consumers to be outbid by buyers closer to home.

“Exports would make sense, but with the amount of material in the bonded area, it won’t be a lot,” CRU’s Dinsmore said.

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