DJ China To Import More Aluminum In Mar, Apr On Arbitrage-Barcap

China remained a net importer of primary and alloyed aluminum in February, and is likely to import even more in March and April due to arbitrage trading on the premium in domestic metal prices over London Metal Exchange prices, Barclays Capital said in a note Tuesday.

Net imports of primary aluminum fell 37% on month to 10,740 metric tons in February, the customs department said Monday.

But cancelled warrants for aluminum continued to rise at LME warehouses, signalling that another 5,300 tons last week would be headed for China, particularly from Asian LME warehouses, Barclays said.

"We believe that metal is being moved out of Asian warehouses and imported into China on arbitrage trade," the research house said. "As such, we expect a big increase in March and April Chinese aluminum imports."

The imports were driven by a Shanghai Futures Exchange aluminum premium over the London Metal Exchange of around $400-$500/ton, due mainly to State Reserve Bureau stockpiling.
But Barclays warned that "aluminum's fundamentals remain dire," so China's price advantage can't last.

"All the anecdotal evidence points toward continued weakness in demand, as does the data," Barclays said, pointing to falling output and apparent consumption of primary aluminum the first two months of this year.

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, Barclays said.

However, the research house said it believed the increases were caused by rising metal stocks in China, not end-user demand.

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