What you don't know about the story of the hidden aluminum mountains in Vietnam that no one can reach
What you don't know about the story of hidden aluminum mountains in Vietnam that no one can reach
In an industrial area about an hour's drive toward the South China Sea coast from Ho Chi Minh City, giant piles of raw ore are draped in black tarpaulins, a kilometer long. The highly sought-after treasure could be worth about $5 billion at current prices.
In the secret world of aluminum, those in the know say the stockpile in Vietnam is the largest they have ever seen, in an industry that spends a lot of time building inventories, while analysts spend a lot of time trying to locate them, but in terms of a market that is suffering from a shortage of... Increasingly supply, they are stocks that we may never see again.
The reason these stockpiles are unlikely to move anytime soon involves the presence of Vietnamese customs authorities, and it highlights how important a ubiquitous but volatile commodity is at a time when makers of everything from auto parts to beer cans are competing for more of it as they emerge from the coronavirus pandemic with China choking off supplies.
While millions of tons of aluminum used to pile up at ports from Detroit and New Orleans in the United States to Rotterdam in Europe and Port Klang in Malaysia, market watchers say the stockpile 50 kilometers (31 miles) from Vietnam's largest city is the only significant one left.
Achieving a surplus
To illustrate further, the inventories are equivalent to the entire annual consumption of India, the world's second-most populous country, according to Duncan Hobbs, a London-based analyst at commodities trader Concord Resources, which has covered metals markets for 25 years. .
He said: “We are witnessing the largest deficit in the global market in at least 20 years, and these stocks will not only fill this deficit, but will also leave us with a surplus.”
The stocks were seized as part of a US-led anti-dumping investigation in 2019 focusing on a Chinese billionaire, and Vietnamese authorities say they were collected from China by Global Vietnam Aluminum Ltd, known as GVA. Although the investigations did not... Ending, the initial investigation into the GVA was dropped due to lack of evidence.
1.8 million tons of aluminum remain stored under the watchful eyes of security guards, and only small amounts have been released to the GVA production line, according to an official at Vietnam's General Customs Administration. The company could not be reached for comment, and part of the area is under a strict lockdown. Because of “Covid 19”.
The sharp rise in prices means that the value of the metal has risen by more than 50% since its confiscation, and if the stock begins to move, the impact may be seismic, as it will be more than enough to erase the global deficit that appeared in the aluminum market this year, and the wave of selling may lead to a collapse. the prices.
However, CRU, one of the main consultancies the sector relies on to track inventories in the world's largest base metals market, has currently removed Vietnamese inventory from its inventory estimates, and the London-based firm estimates that some of the inventory is more than 10 years old. For 10 years, it will be sold as scrap in any case.
“Stocks are usually available at the right price but the problem with this material is that it is not clear under what conditions they will be available,” said Ross Strachan, senior aluminium analyst at CRU in London. “There is not much evidence that Vietnamese stocks will provide any relief to consumers.”
What the piles of metal can offer is a reminder of the turbulent recent history of the aluminum market, and the interest in the inaccessible stock reflects a watershed moment for the metal, as an era of oversupply gives way to a period of shortages due to Chinese restrictions on production to reduce emissions.
Aluminum traders have spent much of the past decade worrying that a massive glut built up during the global financial crisis might return to the market, suppressing already weak prices.
For example, Detroit automakers drastically cut back on purchases, while producers continued to pump out metal in the hope of eliminating competitors. More than half of the world’s producers were losing money, but for many, the huge costs of shutting down their smelters were even greater, so – month after month – the amount of unwanted metal increased.
Then banks and trading companies intervened. Their plan was to make money by buying the surplus and locking it up until the lean years passed. When the global economy began to recover in the early 2010s, manufacturers including Coca-Cola and MolsonCoors found themselves... It lacks aluminum, while mountains of metal lie in major ports around the world.
Eventually, the metal gradually returned to the market as demand recovered, and even as recently as last year, the industrial sector was well supplied, and in the early stages of the pandemic, it looked like the market would flood again.
Inventory depletion
Now, with demand surging and China curbing supply, the consensus view in the market is that the outlook has never been brighter for prices, while the mountains of aluminum are disappearing just when it is most needed by industrial companies.
“Inventories were being depleted at a very rapid pace and in a way that no one was prepared for,” said Camille Wollasley, senior metals analyst at Wood Mackenzie in London.
Beyond Vietnam, the industry's entry into a period of scarcity in other major industrial ports around the world is clearly visible. Satellite images show huge inventory being drained in New Orleans owned by Castleton Commodities and shipped to consumers in the United States. Who have had to pay more for aluminum since President Donald Trump imposed tariffs on imports from China and elsewhere.
A large inventory also disappeared from Malaysia's Port Klang in 2019 around the same time that customs data showed a rise in shipments from the country to Vietnam.
Despite Malaysia's relatively modest status as a consumer of aluminum, Port Klang has also become the largest storage point in the London Metal Exchange's warehouse network, but these reserves are also declining rapidly.
The LME warehouses in Detroit and the Dutch port of Vlissingen are now almost empty after holding more than 3.5 million tons at peak storage by banks and traders, and the same story is happening in Rotterdam, which had millions of tons of metal in LME warehouses and private storage.
But undoubtedly, the situation is more acute in China, where total stocks across the country now stand at about 1.2 million tons, equivalent to two weeks of demand, according to estimates by research group AZ China.
The most visible sign of the growing supply shortage is found in the country's trade data, which shows how the world's largest producer is now a net importer of aluminum as cuts in domestic production intensify, after flooding the global market with the metal for years. China is currently causing a rapid decline in global aluminum reserves.
“For China — given the sheer size of the country — if Vietnamese stocks could come back, the market would absorb them easily,” Walsley said, but these stacked stocks are still painfully out of reach.
Source: East Economy with Bloomberg