Morgan Stanley sees China aluminium exports jump on Middle East supply issues

China’s aluminium and product exports rose 16% year-over-year in May to 632,000 metric tons, the highest since November 2024, while steel exports fell 2% year-over-year but still increased 9% month-over-month to 10.3 million metric tons. Copper imports were 446,000 metric tons, up 4% year-over-year, and the Yangshan premium held at $60-$75/ton, signaling steady physical demand. Iron ore imports were flat year-over-year at 98 million metric tons, and coal imports were down 3% year-to-date, reflecting mixed but generally firm commodity trade flows.

Analysis

The signal here is not broad reflation; it is regional dislocation. Middle East supply friction is creating a relative winner in aluminum because it is a high-volume, low-margin, arbitrage-sensitive market where small freight or energy shocks can reprice export flows quickly. That matters more for downstream converters and logistics than for pure miners: the benefit accrues first to Chinese exporters with captive supply and efficient freight access, while ex-China buyers face tighter prompt availability and higher landed costs.

The more important second-order effect is that rising semi-finished exports and falling inventories suggest China is externalizing weak domestic demand into the export channel rather than absorbing metal internally. That can keep headline export volumes resilient for 1-2 quarters even if the domestic cycle softens, but it also raises the odds of anti-dumping scrutiny from Europe, India, and Southeast Asia. In steel, the mixed data argues against a clean turnaround: the month-on-month bounce looks more like base effects than true reacceleration, so mills may be defending utilization by exporting margin-destructive volume.

Copper is the cleaner read-through for industrial demand: a steady import premium despite choppy macro implies physical demand is holding up better than PMI-type indicators suggest. The risk is that if Middle East disruptions fade or freight normalizes, the aluminum arbitrage closes first, and the marginal trade reverses faster than inventories can adjust. Coal and iron ore softness also tells you the bulk commodity complex is not confirming a broad Chinese cyclical upswing, which should cap upside in the near term for dry bulk and high-cost steel inputs.

The contrarian view is that the market may be overestimating the persistence of the export impulse and underestimating policy response. If trade frictions escalate, export volumes can be penalized via quotas, tariffs, or customs tightening, which would pressure Chinese producers before global prices fully reflect the squeeze. That makes this less attractive as a pure commodity-bull thesis and more attractive as a relative-value trade on regional spreads and shipping/logistics bottlenecks.

Key Decisions for Investors

• Long LME aluminum vs. short a basket of China-linked steelmakers for 4-8 weeks: the spread should benefit if freight disruption and arbitrage persist, but cap exposure if export scrutiny intensifies.
• Fade high-beta dry bulk shippers on any iron ore bounce over the next 2-6 weeks: the underlying import trend is not confirming a durable restocking cycle, so upside in rates looks tactical rather than structural.
• Watch for a short China exporters / long ex-China converters pair in aluminum and semi-finished metals if anti-dumping headlines accelerate over 1-3 months; regulatory risk can quickly compress margins for export-heavy names.
• Maintain a tactical long copper bias via FCX or COPX only on dips over the next 1-3 months: physical demand is still firm, but size it smaller than an outright cyclical long because iron ore and coal are not confirming broad industrial acceleration.
• If using options, consider short-dated call spreads on aluminum-exposed equities rather than outright equity longs; the thesis is a spread move, not a commodity supercycle, so defined-risk exposure fits the setup.