The metal treasure that is seized in Vietnam when the world needs it most

In an industrial estate an hour away from the Vietnamese city of Ho Chi Minh, you can see mountains of tons of metal wrapped in a black canvas. These mountains, in addition to being high, are a kilometer long and hide a ‘treasure’ that would be valued at one 5,000 million dollars. In addition, this ‘treasure’ has become one of the most coveted during the global economic recovery, given its high demand and relative scarcity at this time.

At the meetings of traders and aluminum producers is known and talked about. Vietnam’s aluminum inventories are the largest they have ever seen, something totally abnormal in an industry that is currently struggling to accumulate and build inventories in the face of high demand for this metal. So why doesn’t Vietnam put these aluminum stocks into circulation at a time of high need and high prices?

The reason is that this metal cannot move, for now. At the heart of the matter are Vietnam’s customs authorities, which these thousands of tons have paralyzed waiting for a resolution that has not yet arrived. Meanwhile, makers of everything from auto parts to beer cans are competing to buy this much-needed metal for dozens or hundreds of products.

To put in context what the accumulation of aluminum in Vietnam entails, it could be said that is the equivalent of all annual consumption in India, the second most populous country in the world, says Duncan Hobbs, a commodities analyst at Concord Resources who has been covering metals markets for 25 years.

The largest market deficit in two decades

“We are seeing the deepest deficit in the world market in at least 20 years, and these reserves would not only fill that deficit, but also leave you something to spare,” says the expert.

This treasure is being held as part of a 2019 US-led anti-dumping investigation that targeted a Chinese billionaire. Vietnamese authorities say that all of this metal was accumulated by the Chinese firm for Global Vietnam Aluminum, known as GVA and that could be within these controversial practices. Their investigation has yet to be concluded, although evidence appears to be lacking to directly involve GVA.

The 1.8 million tons of aluminum remain in storage under the watchful eye of security guards. However, an official consulted by Bloomberg ensures that small quantities are taken from that mountain for GVA’s production line, but insufficient to have any impact on global aluminum prices.

The dizzying rally in aluminum has skyrocketed prices by 50% since this mountain of aluminum was seized. If this pile of aluminum ever began to move, the impact could be seismic in the market, they assure from Bloomberg. It would be more than enough to erase the global deficit that has emerged in the aluminum market this year, and a liquidation sale could cause prices to fall.

How is that aluminum?

However, from CRU, one of the key consultancies in which the industry, believe that the size of these inventories could be lower because a part of the aluminum would have been unusable. The London-based firm estimates that some of the metal is more than 10 years old and would likely have to be sold for scrap anyway.

“Typically stocks are available at market price, but one of the problems with this material is that it is not entirely clear under what circumstances it would be available,” said Ross Strachan, senior aluminum analyst at CRU in London. “There is little evidence that Vietnamese inventories can provide any comfort to consumers.”

However, what that mountain of metal can offer is a lesson from the turbulent history of the aluminum market. It is a market that can go from oversupply to deficit in a short time. Inventories cannot be accumulated indefinitely, so they are not a perfect cushion for changes in demand and supply, as it is in other markets.

The traders aluminum have spent much of the last decade concerned about the colossal excess accumulated after the global financial crisis, since its return to the market could have further weakened prices.

But over time, demand began to recover and stocks began to fall to the current point where there is a clear deficit in the market. However, in the early stages of the pandemic, it seemed that the market would once again suffer from an excess of aluminum in the face of the paralysis of investment in all sectors that are intensive in this metal.

Now, with demand booming and China putting the brake on supply, the widely held view is that the prospects have never been brighter for aluminum prices, while inventories are plummeting just when manufacturers need them most.

“Inventories have been shrinking at a very fast rate, something nobody was prepared for,” explains Kamil Wlazly, senior metals analyst at Wood Mackenzie in London.

Beyond Vietnam

Beyond the particular case of Vietnam, the passage of the industry towards scarcity is evident in other important industrial ports around the world. Satellite images show how the huge reserves in New Orleans, owned by Castleton Commodities, have been drastically reduced as the tariffs imposed by Donald Trump on aluminum have forced to consume internal inventories.

The LME inventory depots in Detroit and the Dutch port of Vlissingen are now virtually empty after having housed more than 3.5 million tonnes at peak storage of banks and merchants. The story in Rotterdam is similar.

But the situation is arguably more dire in China, where total inventories across the country now stand at around 1.2 million tonnes, which is equivalent to two weeks of demand, according to estimates from research group AZ China. .

The most striking sign of the growing shortage can be found in the country’s internal data, which shows how the world’s top producer is now becoming a net importer of aluminum as cuts in domestic production intensify. After flooding the world market with metal for years, China is now being to blame for a rapid reduction in global aluminum reserves.