Vietnam has 5 billion U.S. dollars in metal stocks
In the industrial park about an hour’s drive from Ho Chi Minh City to the coast of the South China Sea, there is a huge pile of raw metal covered with black tarpaulin. Stretching for one kilometer, this coveted hoard may be worth about US$5 billion at current prices.
In the mysterious world of aluminum, people familiar with the matter said that Vietnam’s inventories are the largest they have ever seen—an industry that spends a lot of time building inventories and analysts spend a lot of time trying to find them. But in a market that is increasingly under-supplied, it may never reappear.
Why it is unlikely to move soon involves Vietnam’s customs authorities. At the same time, how its existence has become so important has opened a window for this ubiquitous but unstable commodity, because it has emerged from the coronavirus pandemic and China has restricted supply, from car parts to beer cans. All manufacturers are vying for more goods.
The signs of tighter physical supplies in the metal market have also offset the growing nervousness about the broader macro outlook of major industrial economies, especially China, a consumer of commodities. As far as aluminum is concerned, although prices have fallen from multi-year highs, the spread has narrowed substantially in the past month.
In view of the different uses and supply dynamics of individual metals, the abnormally synchronized tightening of the six major LME contracts shows how wide the scope of the material flow is and how wide the rebound in demand since the beginning of the pandemic is, Citigroup Base Metals Analyst Oliver Nugent said.
“A large part of the pressure consumers face is due to logistics, there is no doubt about this,” Nugent said by phone. “But it also shows that demand is very strong.”
To be sure, the full austerity may not last long. The deficit in markets such as copper and lead is fading, even as the price gap between aluminum and nickel has become tighter. But Nugent said that one consequence of the turbulence in the supply chain is that even if the LME market weakens, spreads on other global exchanges may tighten further.
For example, in the case of copper, the spot premium on Shanghai Futures Exchange contracts has continued to increase, even as the LME spread has fallen from its historical high during the unprecedented supply contraction last month.
At 5:53 pm in London, copper futures fell 1.6% to close at $9,406.50 per metric ton. Metal deliveries from LME warehouses in the United States helped partially alleviate concerns about the supply contraction.
LME aluminum prices rose 1.6% to US$2,616.50 per ton, lower than the top of US$3,200 a month ago.
With the assistance of Yvonne Yao Li.
