Japan's January-July aluminum foil imports from China rise 13% on year to record high

Japan imported a record high 12,046 mt of aluminum foil from China over January-July, up 12.6% year on year, according to Japanese customs statistics released last week.

The imports are unprocessed aluminum foil without coating.

One Japanese rolling mill source attributed the increase to lower production costs in China, where mills have at least a $100/mt cost advantage compared to those of Japanese manufacturers.

Japan levies a 6% import duty on Chinese aluminum foil, which falls under generalized system of preference, encouraging developing economies access the Japanese market. Other World Trade Organization members are levied a 7.5% import duty.

Japan's total aluminum foil imports were 13,727 mt over January-July, up 13.8% year on year. Imports were from 18 countries.

The Japanese mill source said imports from China could increase further as production costs are expected to rise in Japan on the back of higher ingot premiums and upcharge for slab, billet and alloys.

Japanese rolling mills pay an ingot premium of $400-408/mt plus London Metal Exchange cash, CIF Japan, plus the upcharge ranging from $140-200/mt for processing ingot into slab, billet of foundry alloys.

Japan produced 66,184 mt of aluminum foil over January-July, up 16.2% year on year, according to the Japan Aluminium Association.

CHINA OVERHANG THREAT

Market observers noted that China has increased exports of semi-finished products and is likely to export more in the second half of this year. Demand for China's aluminum semi-finished products remains strong given the cost advantages of Chinese fabricators, Macquarie Research said on August 18.

Availability of Chinese material may ease tightness in global aluminum supply, Macquarie Research and the Bank of America Merrill Lynch have said.

Japan, however, will likely be importing only foil from China, not other products, said Japanese mill sources. Import duties of 1.6-6% and high freight costs would discourage imports from China, they said.

Japan imported 7,868 mt of aluminum construction structures from China over January-July, down marginally from 7,873 mt a year ago. Construction structures are levied a 2.4% import duty, lower than foil. But they take up more transport space than foil.

Japanese sources also said the impact of Chinese semis exports would be greater in the rest of Asia, impacting demand of finished aluminum products as well as ingot. Some end-users re-melt semis to substitute ingot, sources said.

So far, Chinese semis exports in the rest of Asia appear to be limited to small end-users of less than 1,000 mt/month output. They are believed to be re-melting semis, sourced on a spot basis, end-user sources in Taiwan, Vietnam and Thailand said.

Chinese law enforcement has stepped up efforts to stop exports of primary aluminum labeled as semi-finished product, said one Japanese trader.

"I have heard of rumors [of end-users re-meltling Chinese semis as substitute for ingot], but I have not received any such offers. We use mostly Australian, Middle East-origin ingot," said a Taiwanese rolling mill with over 20,000 mt/year aluminum ingot consumption.

"But if this flow starts, the [ingot] market dies," the source added.

"In short term, I don't think it will affect supply/demand that much, but in medium term, it can replace demand of primary," said one Asia-based trader.

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