Arbitrage opportunity increases China’s aluminum imports

- March 25th, 2009

Aluminum’s fundamentals remain dire, despite the upswing in Chinese Imports. Imports in the country are rising due to an arbitrage opportunity as Shanghai Futures Exchange aluminum is selling at a premium of $400-$500 per tonne on the London Metal Exchange.

By Leia Michele toovey- Exclusive to Aluminum Investing News

Aluminum’s fundamentals remain dire, despite the upswing in Chinese Imports. Imports in the country are rising due to an arbitrage opportunity as Shanghai Futures Exchange aluminum is selling at a premium of $400-$500 per tonne on the London Metal Exchange.  The price differential has been created as China’s State Reserve Bureau stockpiling has drawn down inventories.  Cancelled warrants for aluminum continue to rise at LME warehouses; last week the numbers indicated that another 5,300 tonnes of the metal was headed for China. Analysts expect the situation will extend through April. The strength expected in aluminum imports in the coming months follows China’s record trade volumes in the base metals complex in February. Refined copper and lead imports were the strongest on record, and refined zinc imports were the strongest since November 2005.

North American shipments of the metal have dropped off a cliff this year. Aluminum shipments from the US plunged 45 per cent in January and February combined, compared to the previous year on year period. Aluminum inventories at the end of February totaled 347.9 million tonnes a decline of 24 per cent from the year-ago.  At current shipping rates these stockpiles will be depleted in just over four months.  Two month Canadian aluminum shipments were down 25 per cent. Canadian inventories at the end of February totaled 32,800 tonnes of aluminum, down 21 per cent from a year ago, and at current shipping rates, equal to a three month supply.

India has imposed taxes on purchases of some aluminum products from China for six months in order to help out domestic producers.  The announcement follows the Aluminum Association of India’s suggesting in January that the government started a probe into Chinese imports. Imports of flat-rolled products will attract 21 per cent duty, and foil will be taxed at 35 per cent, according to the Central Board of Excise and Customs.  The duties will be in force until October 8. India’s Directorate of Safeguards found Chinese imports weakened local industry and eroded their market share.

Company News

Indalex Aluminum Solutions Group filed for Chapter 11 bankruptcy protection on Friday, but it is unclear whether the firm will reorganize, seek a buyer or liquidate. The supplier has operations in the U.S., Canada and China; listed assets of between $100 million to $500 million; and liabilities of between $100 million to $500 million. The company’s biggest unsecured creditors are Alcoa, which it owes $6 million, and Rio Tinto which it owes $5 million.  Indalex announced in February that it already had defaulted on an $11.4-million interest payment on its $200 million, 11.5 per cent second priority senior secured notes.

United Co. Rusal, Russia’s biggest aluminum producer, agreed to boost billionaire Mikhail Prokhorov’s stake as part of the restructuring of $2.8 billion in debt. Rusal and Prokhorov’s Onexim Group agreed that $2 billion of the debt will be converted into Rusal shares, boosting Onexim’s stake in the aluminum producer to 18.5 per cent from 14 per cent. The remaining $800 million will be restructured along with the $7.4 billion that Rusal owes Russian and international banks.

Russia’s government may allow Rusal, to pay foreign creditors in equity shares, according to First Deputy Prime Minister Igor Shuvalov. Deripaska, whom Forbes magazine said lost 88 per cent of his fortune last year, this month reached a two-month payment freeze on $7.4 billion that Rusal owes more than 70 banks.  Billionaire Oleg Deripaska’s EN+ Group will see its stake in Rusal shrink to 53.8 per cent from 56.76 per cent after the Onexim restructuring.

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