Chinese primary aluminum imports seen rising on prices

Reuters reported that China's imports of primary aluminum may increase in August as demand from fabricators in the southern Guangdong province rises because of steady Chinese prices.

Traders said that increased demand from China, the world's top consumer and producer of aluminum has driven up premiums for spot aluminum imports about 20% this month. Some international trading houses expecting China's imports of primary aluminum to rise in the coming months are trying to secure more metal from producers which could push up term premiums in Asia for October to December delivery.

Fabricator sources in Guangdong said that local plants had increased imports of primary metal for tolling, a practice in China under which firms are not required to pay the local 17% value added tax for aluminum imports as long as the firms export their products.

Traders said that fabricators also wanted to use up their 2011 tolling quotes after they had not used much of the quotas in the first seven months of the year due to strong LME prices. Many people are watching the LME prices and Chinese prices everyday.

One trader said that the arbitrage between LME prices and Chinese prices is in the narrowest gap since 2009. If LME prices fell about USD 100 per tonne and the Chinese prices remained the same many investors and merchants could rush to import aluminum like 2009.

China imported a monthly record 362,400 tonnes of primary aluminum in April 2009 driving up that year's imports 1,130% from the previous year to 1.5 million tonnes. The imports have fallen since then and stood at merely 7,575 tonnes in July 2011 up 10% from June 2011.

The cash LME aluminum prices fell 10.7% from end July to USD 2,319.5 per tonne in late Asian trade. Spot Chinese prices fell 4 percent during the same period to CNY 17,800 per tonne to CNY 17,950 per tonne.

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