Experts warn of bubble in Aluminum sector

With the recovery of China's industrial output,imports of electrolytic aluminum have skyrocketed, growing by a factor of 16 in the first half of 2009. However, analysts warn that a bubble may be emerging in the market.

China's electrolytic aluminum industry has been plagued by over-capacity in recent years. The start of this year saw production volume reach 7 million tons.

However, customs figures show that in the first half of 2009, China imported over 1 million tons of electrolytic aluminum, while only exporting around 300,000 tons. How has this happened?

Yang Yinghui, General Manager of Metal Products Dept., COFCO, said, "The risk-free profit for importing aluminum ingots from the international market can be as high as 1,500 yuan per ton. The huge profits certainly attract large amount of speculative capital."

Industry insiders say it is difficult to reverse the over-capacity at the moment, while skyrocketing imports will only magnify the bubble in the sector.

Wen Xianjun, vice Chairman of China Non-ferrous Industry Association, said, "Both the market bubble and speculative investment are very obvious right now."

With a growing price gap between the domestic and international markets, more and more domestic dealers and manufacturers have joined the stampede to import electrolytic aluminum. However, vast amounts of such imports are actually being stockpiled in their factories instead of being used.

Li Zhihui, General Manager of SH Fushixing Metal Material CO., said, "The stockpile is in case international prices continue to rise after August, when the industry enters its peak season."

Analysts say that China's relatively easy monetary policies at the moment have also contributed to the stockpiles.

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