A recent spike in global aluminium prices has led Chinese buyers to temporarily hold off on importing the metal from Russia, despite both nations’ efforts to deepen trade ties, Bloomberg News reported.
This hesitation comes after sanctions were imposed by the UK and US on Russian base metals, which were expected to drive more aluminium sales to China, the world’s largest consumer of the metal.
Despite the alignment between Moscow and Beijing, the commercial reality of high prices is causing friction.
Traders have reported that Chinese buyers are reluctant to meet the increased costs, and Russian sellers are not offering discounts, supported by steady demand elsewhere in Asia.
Additionally, logistical issues, such as bottlenecks in Russian rail transport, are complicating efforts to boost shipments to China.
The timing of these developments is notable as Russian President Vladimir Putin is visiting China at the invitation of President Xi Jinping to reinforce their “no-limits” partnership.
The announcement of Putin’s visit has already had a positive impact on the market, with shares of Russia’s leading aluminium producer, United Co. Rusal International PJSC, rising by as much as 6.4 per cent in Hong Kong on Tuesday.
However, Rusal declined to comment on the ongoing trade dynamics.
Amid growing isolation from Western markets due to the invasion of Ukraine, Russia has turned to China as a key buyer of its commodities.
This shift has allowed Chinese importers to secure discounts on essential raw materials, often using yuan instead of dollars to bypass international sanctions.
Aluminium trade has seen growth, with Rusal’s revenue from China jumping to 23 per cent last year from just 8 per cent in 2022.
Russian aluminium exports to China more than doubled in the first quarter to 393,000 tons, according to Chinese customs data.
However, the window of opportunity, known as the arbitrage window, has closed due to the rising world prices driven by Western sanctions.
Analyst Li Jiahui from Shanghai Metals Market noted that there have been very few trades in Russian aluminium on the spot market due to import losses.
He also mentioned that the overall imports from Russia in April and May are likely to decline.
To attract Chinese buyers, Russian producers would need to offer larger discounts, but they might be unwilling to do so given the solid demand from other markets such as Southeast Asia, Japan, and South Korea.
Meanwhile, China’s slowing economy has also been a drag on metals demand.
However, this could change as the peak season for aluminium consumption approaches, potentially narrowing the price gap between local and international markets.
In other related news, President Joe Biden recently announced tariff hikes on a range of Chinese imports, aimed at boosting domestic manufacturing in critical sectors.
Additionally, China’s CMOC Group Ltd. is under scrutiny by a top US official for allegedly using “predatory” tactics to lower prices of cobalt by flooding the market with the metal from Congolese mines.
Despite overcapacity issues in China’s battery industry, producers of raw materials essential for energy transition continue to thrive.
(With inputs from Bloomberg)