China Water: June 17, 2008: South China floods affect global aluminum prices.

Should there be a theme to this blog, it is that if the world's most populous nation and fastest growing economy is heading on the way to severe water problems, then the effects will be felt worldwide. Here we can see that the recent floods in south China are starting to affect global aluminum prices.

Peter Huston
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http://www.reuters.com/article/worldNews/idUSHKG8606920080617?sp=true

China to raise aluminum exports after Guangdong floods
Tue Jun 17, 2008 6:45am EDT

By Polly Yam

HONG KONG (Reuters) - Floods in China's southern Guangdong province and tightening power supply are weakening domestic demand for aluminum, spurring smelters to raise exports, traders and industry sources said on Tuesday.

Guangdong is an aluminum fabricating base in China, the world's top consumer and producer of aluminum. Any unexpected move in exports could drive global prices.

Weak domestic prices are spurring exporters to sell alloyed ingots and billets at low prices, traders said.

"Firms are very keen to export alloyed ingots. One Korean company has contracted 10,000 tonnes per month and an Western trading house got 6,000 tonnes a month," said a trader at an international trading house said.

Chinese aluminum alloy ingot is being offered at nearly flat to cash LME aluminum prices in Asia, compared with spot premiums of about $90 a tonne over the cash price for Western grade primary metal.

China's exports of primary and alloyed aluminum surged 22 percent on the month to 86,669 tonnes in May, according to Customs data. Most of it was believed to be alloyed ingot which does not carry export tax, while primary metal carries 15 percent tax.

Floods in Guangdong, already struggling with power supply problems, were adding pressure on the aluminum market, said a manager at a fabricating plant in Nanhai city, home to dozens of aluminum window and door frame manufacturing plants.

"The flooding should affect aluminum demand. Roads are blocked and purchases of products have been delayed," a manager at a fabricating plant in Nanhai said.

Downpours have affected many cities in Guangdong this month. Guangdong officials warned of a "black June" as high tides, rain and two converging swollen rivers threatened levees, Xinhua news agency said.

"Fabricators are cutting buying of aluminum. Heavy rain should be affecting house building," a trader in Nanhai said.

Aluminum demand growth has fallen in past few months as Beijing's credit tightness reduced fabricators' cash to buy the metal, traders and aluminum smelter officials said.

The country's weak exports of aluminum-contained products such as bicycles and of semi-finished aluminum products have also slowed the growth.

Fabricators in Nanhai have suffered reduced voltage three times a week since March and used diesel-powered generators to keep up production.

But the fabricators are no longer able to maintain production after local authorities stopped them using such generators from last week, the fabricator manager said. He added this would cut fabricators' demand further.

Benchmark three-month aluminum on the London Metal Exchange has risen 24 percent this year to $2,981 per tonne on Tuesday.

But the three-month Shanghai aluminum contract, currently September, is only up 5 percent at 19,005 yuan.

($1=6.8914 yuan)

(Editing by Peter Blackburn)

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