SHANGHAI, Aug 25 (SMM) - According to customs data, China imported 51,037.4 mt of primary aluminium in July 2022, a month-on-month increase of 79.1% and a year-on-year decrease of 72%. Imports of primary aluminium from January to July totalled 248,273.2 mt, down 73.2% on the year.
In terms of export, China exported 7,588.5 mt of primary aluminium in July, an increase of 14.6% month-on-month and 1665% year-on-year.
Altogether, China's net imports of primary aluminium stood at 43,448.95 mt in July 2022, up 98.6% from June and down 76.1% from the previous year. The net imports from January to July was 63,987.95 mt, a year-on-year decrease of 93%.
Since the scale of domestic primary aluminium exports was small, and China was actually a net importer of primary aluminium, SMM will focus on the primary aluminium imports in the following analysis.
According to SMM analysis, the main reason for the 79.1% month-on-month increase in domestic primary aluminium imports in July was that aluminium prices at China and abroad both fell sharply in June, with LME aluminium leading the decline. As a result, the domestic import window of aluminium ingot was forced open, and the import losses were narrowed to below 100 yuan/mt, under which circumstances overseas traders took the opportunity to ship cargoes to the Chinese market. In addition, the United States raised interest rates dramatically in July. Amid the downturn of the overseas economy, the overseas demand for aluminium was poor, thus some local suppliers were again focused on domestic consumption.
From the perspective of trade models, general trade accounted for 64.7% of total domestic imports of primary aluminium in July. At the same time, processing trade with supplied/imported materials increased significantly, accounting for 22.1% of the total imports. In particular, imports from Rusal to Hebei and Henan provinces were mainly processing trade with supplied materials.
From the perspective of suppliers, Russia was the top supplier of domestic primary aluminium imports, with a import volume of 39,100 mt, accounting for 76.5% of the total imports. The imported aluminium ingots from India amounted to 4,900 mt, up 390% from June.
SMM expects that domestic primary aluminium imports will maintain a slight growth in August, and the net import volume is estimated to drop to about 30,000 mt. The main reasons behind are provided as follows.
First, both domestic and overseas aluminium prices slumped in July amid the bearish sentiment caused by the US interest rate hikes and the macroeconomic recession. In particular, the prices of domestic aluminium declined further than that of overseas, promoting the SHFE/LME aluminium price ratio to trend lower. As the import losses of primary aluminium expanded in July compared with June, there was no chance for overseas aluminium ingots to flow to China.
Second, the domestic aluminium downstream processing sector was in the off-season in August, and the average operating rate of aluminium processing enterprises stayed low due to high temperatures and power rationing. As a result, the domestic inventory of aluminium accumulated, and the domestic demand for overseas aluminium also weakened.
Looking ahead, the imports between September and December will be greatly affected by the domestic and overseas aluminium prices in August. SMM expects that China will hardly maintain net imports in the future, mainly because the growth rate of domestic aluminium operating capacity has slowed down since August. In addition, 1 million mt of aluminium operating capacity in Sichuan province was suspended due to power rationing. Therefore, the domestic output of aluminium shank in August, easing the pressure on the supply side. However, when the power restriction on downstream enterprises is lifted in the future, there is also possibilities that they will import aluminium to restock. It should also be pointed out that high prices of energy resulting from the energy shortage in Europe have weighted on the output of overseas aluminium smelters and downstream processing enterprises. The sluggish supply and demand of aluminium in Europe failed meet the local terminal demand. Therefore, the demand for imported aluminium semis and aluminium products might increase, boosting the export of relevant products in China and other countries.
