China to Remain a Net Importer of Primary Aluminium This Year

China imported 48,993 tonnes of primary aluminium in the first four months this year, down 9% from last year, while it exported 22,080 tonnes of primary aluminium during the same period, plummeting 70% year-on-year, which represents net imports of 26,913 tonnes during this period. China has been a net importer of primary aluminium since last October.

An export tax of 15% levied on primary aluminium has resulted in a sharp shrinkage of primary aluminium exports, which have pulled domestic aluminium prices down to levels much lower than spot aluminium prices on the London Metal Exchange (LME).

The spot primary aluminium price on the Changjiang Nonferrous Metal Spot Market was around RMB 18,500 ($2,665.71) per tonne today, while the spot primary aluminium price on the LME was approximately $2,871 per tonne.

"Due to the rapidly expanding price gap, most of the imported primary aluminium will not be used for domestic consumption. Instead it will be used to make aluminium products for export, as some aluminium products, such as aluminium pipe, still enjoy VAT export rebates as high as 13%," Yang Dongshen, an analyst from Gartlett Investment, a Hong Kong-based futures brokerage, told Interfax today.

"However, since the volume of primary aluminium imports is quite small compared with the whole market's aluminium supply, I don't think an increase in primary aluminium imports will substantially impact the domestic market," Yang said.

Yang also said aluminium product processing trade has become a main channel for primary aluminium imports, which has led to their increase. Aluminium product processing trade, also known as tolling, allows Chinese companies to import primary aluminium or aluminium scrap and process them into finished products for re-export under favorable tax policies.

China exported 150,000 tonnes of aluminium product in April, up 5.76% from the previous month. In the first four months, aluminium product exports saw 0.4% year-on-year growth to reach 610,000 tonnes.

Li Junchao, with Shenyin Wanguo Futures, also agreed that most of the primary aluminium imports are manufactured into aluminium products destined for overseas markets. China's primary aluminium aggregate consumption is well-supported by the country's huge aluminium product exports.

"China will surely be a net primary aluminium importer in 2008. The country is encouraging primary aluminium imports and is restricting primary aluminium production capacity expansion in a bid to control pollution and conserve energy. However, imports will still be relatively small compared with the country's total primary aluminium output," Li told Interfax.

China's primary aluminium production reached 4.25 million tonnes in the first four months, up 10.9% from last year, according to the National Bureau of Statistics.

Analyst Paul Robinson with CRU Group predicted last week in Shanghai that China's 2008 primary aluminium production will come to 14.8 million tonnes, up 16% from last year. However, the predicted figure was around 800,000 tonnes lower than CRU's previous forecast that was published at the beginning of this year, based on assumptions including a 500,000-tonne loss caused by the snowstorms and a 60,000-tonne loss due to the earthquake.

China's demand for primary aluminium in 2008 is expected to grow in excess of 22% on last year's 12.3 million tonnes, outpacing a forecast of 8.9% year-on-year growth for global demand, which is expected to hit 41.1 million tonnes, according to Robinson.

He also predicted China would be a net primary aluminium importer of 1 million tonnes by 2012.