The world needs $5 billion reserves of aluminum, but can’t

The world needs $5 billion reserves of aluminum, but can’t

An industrial park about an hour’s drive from Ho Chi Minh City to the South China Sea coast consists of huge mounds of cast metal covered in black tarpaulin. The much-awaited hoard, one kilometer long, could cost around $5 billion at current prices.

In the enigmatic world of aluminum, those in the know say that the reserves in Vietnam are by far the largest – and this is in an industry that spends a lot of time building reserves, while analysts spend a lot of time finding them . But as far as an increasingly short supply market is concerned, it is one that may never be seen again.

As for why it’s not likely to move any time soon, Vietnam’s customs officials are involved. How its existence, meanwhile, has become so important, opens a window to a ubiquitous, yet uncertain commodity at a time when manufacturers of everything from car parts to beer cans are competing for it because They stem from the coronavirus pandemic and China’s supplies. ,

While ports from Detroit and New Orleans in the US to Rotterdam in Europe and Port Klang in Malaysia used to hold millions of tons of aluminum, market watchers say it is 50 kilometers (31 mi) away from Vietnam’s largest city. The only notable is the stockpile. Left.

To put this in perspective, this equals the overall annual consumption of India, which is the world’s second most populous country, said Duncan Hobbs, an analyst at London-based commodity trader Concorde Resources, which has covered the metals markets for 25 years. Used to be.

“We are seeing the deepest deficit in the world market in at least 20 years, and this stockpile will not only fill that deficit, but it will also leave you some left over,” he said.

The hoardings were confiscated in 2019 as part of a US-led anti-dumping investigation focusing on a Chinese billionaire. Vietnamese officials say it was deposited from China by Global Vietnam Aluminum Ltd, better known as GVA. They have not completed their investigation, although GVA’s initial investigation was dropped due to lack of evidence.

According to an official from Vietnam’s general customs department, 1.8 million tonnes of aluminum stockpiles are under the watch of security guards, with only a small amount of GVA released to its production line. The company could not be reached for comment. A part of the region has been under strict lockdown due to COVID-19.

The sharp jump in prices means that the value of the metal has increased by more than 50% since it was confiscated. If the stockpile ever starts to shake, the impact could be seismic. That would be more than enough to erase the global deficit that emerged in the aluminum market this year, and fire sales could push prices down.

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Nevertheless, the industry, which is one of the leading consultancies for keeping track of stockpiles in the world’s largest base-metal market, has now omitted Vietnamese stockpiles from its inventory estimates. The London-based firm believes that some of the metal is more than 10 years old and could be sold as scrap anyway.

“Stocks are generally available at the right price, but one problem with this material is that it is not entirely clear under what circumstances it will be available,” said Ross Strachan, senior aluminum analyst at CRU in London. “There is little evidence that Vietnamese stocks should provide any consolation for consumers.”

What metal stacks can offer is reminiscent of the turbulent recent history of the aluminum market. Interest in the out of reach hoard reflects the metal’s watershed moment as Chinese restrictions on production to reduce emissions give way to a reduction in an era of oversupply.

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Aluminum traders have spent much of the last decade worrying that the global financial crisis could bring back glut in the market and suppress already weak prices.

For example, the Detroit carmaker slashed purchases heavily while producers continued to pull out the metal in hopes of outwitting competitors. More than half of producers globally were losing money, but for many the huge costs involved in closing their smelters would have been even greater. So – month after month – the surplus of unwanted metal kept increasing.

Then, ventured into banks and business houses. His plan was to make money by buying up the surplus and locking it up for lean years. As the global economy began to recover in the early 2010s, manufacturers including Coca-Cola and Molsoncours found themselves short of aluminum when mountains of the metal sat at major ports around the world.

Eventually, the metal was drip-fed back into the market as demand picked up and even supplied the industry as comfortably as last year. In the early stages of the pandemic, it looked like the market would sink once again.

Now, with demand picking up and China curbing supply, the general consensus is that the outlook for prices is never looking brighter, while aluminum mountains are disappearing when manufacturers need them most.

“The stocks have been pulled down at a very rapid rate that no one was prepared for,” said Kamil Vlazli, a senior metals analyst at Wood Mackenzie in London.

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Away from Vietnam, a lack of industry can be seen at other major industrial ports around the world. Satellite imagery shows a massive stash has been pulled up in New Orleans, owned by Castleton Commodities, shipped to consumers in the US who have been threatened by President Donald Trump’s imposition of tariffs on imports from China and elsewhere. Since then there has been more cough for their aluminum.

A large stockpile in Malaysia’s Port Klang also disappeared in 2019, around the same time that customs data showed a spike in shipments from the country to Vietnam.

Despite Malaysia’s relatively modest status as an aluminum consumer, Port Klang has also become the largest storage point in the London Metal Exchange’s warehouse network, but those reserves are also rapidly declining.

The LME depot in Detroit and the Dutch port of Vlissingen are now nearly empty, with more than 3.5 million tonnes occupied by banks and merchants at the peak of warehousing. There is a similar story in Rotterdam, which used to store millions of tons of metal in LME depots and private warehouses.

But the situation is arguably most dire in China, where the total inventory across the country now stands at about 1.2 million tonnes, the equivalent of two weeks of demand, according to estimates by research group AZ China.

The most important sign of a growing shortfall can be found in the country’s trade data, which shows the world’s top producer is now becoming a net importer of aluminum as domestic production is cut. After flooding the global market with the metal for years, China is now rapidly depleting the world’s aluminum reserves.

“For China – for the sheer size of this country – if Vietnamese reserves can go back, it will be easily absorbed,” Wlazly said. However, that stash is technically out of reach.

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