,This time around the world's COVID-19 surplus is sitting at Asian locations within easy shipping distance of China, particularly Malaysia's Port Klang. (File pic shows aluminium stock at Port Klang, Malaysi. - The Star
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LONDON: China imported a further 158,000 tonnes of primary aluminium in June, bringing the half-year tally to 744,000 tonnes.
When the world's largest producer started tapping the international market-place early last year, it appeared to be a temporary blip caused by China's rapid bounce-back from lockdown.
A year on, however, and it's becoming clear that this is no fleeting phenomenon such as seen during the financial crisis a decade ago.
China's primary metal production growth has stalled as power-hungry smelters adapt to tightening energy efficiency targets. Producers can't keep pace with demand, meaning imports are needed to rebalance the domestic market.
This is exerting a huge gravitational pull on aluminium stocks as accessible metal migrates to Asian locations to capitalise on China's new import appetite.
Aluminium buyers everywhere else, particularly in the United States, are paying the price in the form of record-high physical premiums.
A STRUCTURAL SHIFT
China has hoovered up 1.8 million tonnes of primary aluminium since these accelerated imports began in the second quarter of 2020. (https://tmsnrt.rs/3lz2u9Z)
That exceeds the 1.5 million tonnes imported in 2009, the only historical precedent for such elevated volumes. However, back then the surge washed out after six months. The current import wave has lasted over a year.
Moreover, a simultaneous shift from net exporter to net importer of unwrought alloy is a new development and one which seems due to the partial off-shoring of China's scrap-alloy processing chain.
It's noticeable that the relaxation of a ban on imports of scrap metal at the end of last year hasn't generated any increased flow of aluminium recyclables. Copper scrap imports leapt by 91% in the first six months of this year, but those of aluminium were up by just 5% on last year's low levels.
China's proposed ban on scrap imports has displaced global flows to Malaysia and India, which are now the two largest-volume suppliers of alloy to the Chinese market.
If the displacement is permanent, higher alloy imports are here to stay.
The big question is whether primary metal imports are also going to become the new normal.
The tightness in China's domestic market is currently being accentuated by logistics - many smelters are in the northwest, far from consumption hubs in the east - and rising export demand for products as recovery takes hold in the rest of the world.
But the power constraints facing a still largely coal-dependent aluminium smelter sector aren't going to go away as energy efficiency targets tighten.