Rogue Aluminium Shipments Suggest Chinese Metal Stockpiles are Being Re-Exported

This might be the year's most important news. Which got almost no press globally.

Something strange happened in Japan in December. Shipments of aluminum from Mozambique and Brazil showed up in the northwestern ports of Fushiki and Fukui.

Shipping aluminum to Japan isn't weird. The nation is an important consumer. But shipping South American and African aluminum to northwest Japan is strange.

These are minor ports. Usually such imports would be unloaded on the Pacific side, at Yokohama, Osaka or Nagoya.

Where did this "rogue aluminum" come from? Traders think it might be from China.

When Japanese customs officials receive a shipment, they record the country where the goods originated. Not the country the ship sailed from.

Traders theorize that this aluminum may have come from Brazil and Mozambique via an intermediary port. Shanghai.

It's reported that large aluminum stockpiles have been held at Shanghai ports over the past year. Early in 2009, London Metal Exchange prices were running lower than Shanghai prices. Prompting Chinese traders to import and store large quantities of metal for re-sale.

Metal coming from Shanghai would indeed be easier delivered to northwest Japan, rather than to the usual ports on the eastern side of the country.

If Chinese stockpiles are being re-exported, there are critical implications for the metals markets. Massive Chinese buying of base metals over the past year was one of the only factors supporting the market. Demand from almost every other part of the world remains sluggish.

No one knows exactly how much metal China bought and stored. But it is almost certainly a big number. In the first nine months of 2009, official stockpiles of refined copper rose 1.6 million tonnes. That metal would have been enough to satisfy 12% of global demand during the same period.

And those are only official stockpiles. Anecdotal evidence strongly suggests Chinese traders are holding even more metal in private inventories.

If Chinese stockpiles get dumped on world markets, it would have a marked impact on prices. China's recent urbanization (which has driven the nation's demand for metals) has been called the greatest migration of people ever. The re-export of last year's zinc, copper, aluminum and iron ore inventories could be the greatest migration of metal the globe has ever witnessed.

I mentioned a few weeks back that shipping data seem to support this theory. The Baltic Dry Index (which tracks global shipping prices) has been falling lately, indicating less demand for ships. But at the same time, Chinese shipping prices (as tracked by the China Containerized Freight Index) have been rising, indicating more traffic. As the charts below from my friends at www.statsweeper.com show, the BDI is down 15% in the last week. While the Chinese index is up 6%.





Why would Chinese shipping be increasing while the rest of the globe is floating less? One explanation is that increasing metal shipments are leaving Chinese ports, bound for places like Fushiki and Fukui.

Keep an eye on this one to see if the re-export trend solidifies.

Dave Forest
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