China Traders Export Aluminium as Arbitrage Price Spread Narrows

TOKYO, Aug. 21 -- Some Chinese traders are believed to be exporting aluminium to South Korea as the spread between the domestic and overseas prices has narrowed,
Korean trade sources said Thursday.

    One trader said Chinese traders, who had imported Good Western-grade aluminium from Western producers, had offered him spot sales this month.

    While the London Metal Exchange aluminium prices rose above $2,000/mt last week, the SHFE prices stayed rangebound, trading at around Yuan 15,000 ($2,205/mt) for the nearby September contract.

    The spread between the LME and SHFE prices narrowed to roughly $300/mt this week, from over $500/mt in April.

    "Chinese traders who had taken advantage of the SHFE and LME price spreads and imported aluminium, are starting to ship out," said the trader.

    The trader added he had heard the Chinese trading houses had secured Good Western metal on a contract basis, rather than spot. Good Western producers are not active in the spot market as they are almost sold out for August and September cargoes.

    The Korean buyers are believed to have paid around $120/mt plus LME cash CIF Korea for the cargoes.

    China's imports of unwrought aluminium and aluminium products in January-July were about 1.61 million mt, soaring 194% year on year, according to the country's customs office.

    The Good Western aluminium shipped to South Korea from China this month is believed to be in small cargoes, not more than 1,000 mt. And the cargoes are not offered regularly, but only when LME prices rally, sources added.

    Another Korean trader said he had received an offer for Indian-origin metal at $100-110/mt plus LME cash CIF. The metal was originally for shipment to China, but the seller was trying to change its destination as China seems to have enough supply.

    Supply in South Korea is easing due to increased availability of metal from Tajikistan as well, the trader added.

    The move to shift aluminium stocked up in China to other Asian countries, is limited as yet, however, as sellers want to wait for the fourth-quarter premium negotiations between Good Western producers and Asian buyers to settle, said Japanese traders.

    "I believe sellers would align their offers to the Q4 premiums," one trader said.

    The Q4 talks start next week in Tokyo, and are expected to settle by September 15, the deadline for arranging the first October shipment from Australia.

    (Source: Platts)