A recent CRU note shined some useful light on how the reporting of aluminum inventory in China has been distorted by changes in the supply chain between smelters and downstream consumers. Our reporting of primary metal inventory generally measures exchange stocks of ingot, sows and t-bars, and adds in an estimate for off-market stocks held by trade buyers and the reported inventory held by smelters.
It is a process that has generally held us in good stead for decades — with the one glaring omission of off-market stock and finance trade inventory running into millions of tons that we have no visibility on, but that’s another matter! Well add to that, says CRU, the changing nature of the Chinese aluminum manufacturing industry.
China’s Shadowy Aluminum Industry
Lured by cheap coal and, as a result, low-cost power, Chinese smelters have relocated in droves to the north and north east provinces, remote from traditional downstream clients on the east coast.
Transportation costs are high and can be unreliable, particularly in winter. So, Chinese customers have come to their metal suppliers, relocating cast-house and direct casting facilities adjacent to the smelters. The products they, in turn, produce are higher value and better able to absorb those transportation costs. So far, so good. (more…)