Mexico hat dance

Thanks to the many people who sent me the piece from the Wall St Journal last week regarding the stockpile of metal in Mexico.

The story talks about a pile of aluminium growing to as much as 1 million tonnes, and names Zhongwang as the company who is parking the metal there. The allegation is that Zhongwang are shipping extrusions to Mexico, remelting the metal and converting it back into ingot or extrusion log.

Most of the story last week was nothing new in terms of allegations, though the interesting new bit was that the metal is now on a new journey to Vietnam, where it presumably will go through further re-purposing for sale into unsuspecting markets.

Today Reuters have run a story quoting the China Nonferrous Metals Fabrication Industrial Association as denying the whole story. According to Reuters, the industry association said it’s not possible that China could have shipped so much metal to Mexico, and it’s not possible for Mexico to ship so much metal into the USA. The industry association’s words displayed indignation and used words such as “outraged”.

China does Outraged very well.

Intrepid reporter Jo Mason and Ruby Lian seem to have avoided the temptation to comment on the angry denials from the industry association, sticking to quoting them and some basic numbers from the WSJ article.

But when you read what Jo and Ruby reported, it doesn’t take long to see through the outrage and indignation. The industry association used the following arguments as to why the allegations are not true. I have inserted my own response to their arguments.

• China imposes a 15% tax on exports of raw aluminium so it’s not possible to export primary aluminium. Sure, that’s true, but the allegation is not about primary aluminium. It’s about so-called fake semis that leave China as an extruded product 0r a rolled product. These products not only get no duty imposed, they also attract a 13%-15% refund of VAT.
• The association said that if the extrusion products were from China it would not be possible to change their origin to Mexico. But the products being presented to the USA are not extruded products. The allegation is that the metal is re-birthed into ingot, allowing it to get a new birth certificate.
• Mexico exported 291,000 tonnes of aluminium products to the United States between 2001-2015 and the association said “it would take several decades to ship 1 million tonnes of stocks to the U.S.” Sure, at that rate, but the rate would have been much higher if the US authorities hadn’t acted at least 2 years ago to put a stop to the imports from Mexico. In any case, who said it’s about selling metal for profit into a large market? Industry insiders that I speak to all agree that it’s more about moving money out of China. Any financial transaction incurs a fee, and if this allegation is true then the perpetrators are simply accepting a higher cost of getting money out of China. The money will remain frozen until the metal is sold, in some form somewhere.

Hence why I titled this post the Mexico Hat Dance. Some nice dance moves here by the industry association.

By the way, in defence of Jo and Ruby, they were reporting on an article in the industry association’s newspaper. I am sure if they had had these arguments presented to them in an interview, there would have been some interesting follow-up questions.

Postscript - those of you who met my assistant Stefi last week at our conference will know that Stefi is from Mexico. Stefi tells me that it’s Mexico National Day tomorrow. Happy National Day to Mexico.