15 ms·

Chinese Billionaire Linked to Giant Aluminum Stockpile in Mexican Desert

234 points by nkurz 10y ago

danielvf 10y ago
The article mentions that aluminum prices have fallen 50% since 2010. However, prices were double historical normal from 2005 to 2011. The price lowering was just a return to normal prices.
- rrggrr 10y ago
  This is correct. Three factors drove the bubble in aluminum and other commodities: Increased energy expense, speculative and fraudulent investment, and some increased consumption. However, three factors are likely to continue to drive aluminum and other commodities under the mean: Lack of confidence, spectacular debt burdens and deflationary trends across commodity price inputs. Its likely to be years before a stable mean is established, despite the occasional mirage of stability from month to month.
  - at-fates-hands 10y ago
    I remember working at a bike shop around this time and within 6 months all of our bikes went up in price like $50-100. I had no idea what was going on and asked one of corporate office guys what the deal was. He said between India and China, they had both put huge strains on steel, aluminum and titanium and it was causing a shortage for bike manufacturers, so they were raising their prices since the prices for these metals had skyrocketed in recent months. Good to know it was a little more to it, but interesting nonetheless.
    - deleted 10y ago
      [deleted]
  - joe_the_user 10y ago
    Indeed, one of the motivations for speculation has been the continuous (electronic) printing of money by the US and other governments (combined with massive infrastructure projects by China), leading many investors to logically-if-naively believe that commodity prices (especially gold) would follow "real" money. The problem is that all commodities are actually produced and consumed and speculation simply causes disproportionate production followed by a crash. And, of course, there are a number of ways to do speculation in a bear market but altogether, more money is going to be made in a bull market. Even more, since the money coming out of quantitative easing isn't going into consumer goods (that much), it has to go into speculation and it thus seems likely the various kinds of market imbalances will or get worse.
davesque 10y ago
I'm sure this guy will just get a little slap on the wrist.
- JoeAltmaier 10y ago
  Its not clear he's done anything wrong. Shipping Aluminum to Mexico? What's the problem.
  - CountSessine 10y ago
    That's what I was thinking. If China wants to subsidize American manufacturing by selling us cheap aluminum, what's the problem? This is is bad if you're part of the tiny American aluminum mining and extraction business, but it's probably pretty fantastic if you're part of the huge and important industries making anything with aluminum, like cars and airplanes. Why do we want to protect primary industries when historically there's been so much more money in secondary industries?
    - ittekimasu 10y ago
      Do you know the story of how the British went from petty traders to "greatness"?
      - lostlogin 10y ago
        And then back again. That's empires for you.
        CPLX 10y ago
        Of course, one could argue that those of us in the US are in fact the British Empire, the narrative slightly complicated by that civil war period of 1776-1812 of course.
        ittekimasu 10y ago
monopolyshit 10y ago
Good timing to distract public from Clinton's scandal.
- lostlogin 10y ago
  Are you referring to the one which she has been cleared of pretty comprehensively? I can't stand her but the faux email scandal is tiresome.
bjfish 10y ago
This reminds me of the 2013 Goldman Sachs aluminum story: http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=1 http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum...
- honkhonkpants 10y ago
  Yeah but those guys are white.
MrZongle2 10y ago
“My Moby-Dick has been Zhongwang,” says Mr. Henderson, president of the Aluminum Extruders Council, a U.S. trade group. Without context, I would have thought that a Markov text generator was on the loose.
- kwhitefoot 10y ago
  Really? Why? Mr. Henderson is simply claiming that hist situation bears some similarities to Captain Ahab's. It might or might not really be true but the statement is clear enough for anyone moderately well read in English language literature.
  - MrZongle2 10y ago
    It's not that the reference is obtuse (it isn't), it's that one usually doesn't encounter "Moby Dick", "aluminum extruders" and "Zhongwang" in the same sentence. It can give one pause, in the same manner as if the sentence were full of alliteration.
ryanmarsh 10y ago
One of the reader comments said: "Extradite him to the US and then prosecute him. Getting rich without any merits is horrible." and I thought: you must be new here
- malchow 10y ago
  Really? Wouldn't you think U.S. has the lowest proportion of "rich without merits" as %age of rich of any nation in the world – and indeed in history of world?
  - wskinner 10y ago
    Not sure why you're getting downvoted. This is a totally valid point. For the downvoters: malchow's claim is that in the US, rich people are more likely to be businessmen or people who have otherwise worked for their wealth, rather than simply having been born to the right parents.
    - givinguflac 10y ago
      I agree with what you're saying, but at the same time it's a hell of a lot easier to end up a wealthy adult if you come from a wealthy family. "Small" loans from family etc.
      - djrogers 10y ago
        Roughly 80% of American millionaires are the first generation of their families to be wealthy. Here's the surprising part - most of them get there by working hard and spending less money than they earn... [1] https://www.nytimes.com/books/first/s/stanley-millionaire.html https://www.nytimes.com/books/first/s/stanley-millionaire.ht...
        nkurz 10y ago
        I like your link, but I couldn't find that particular statistic within it. Could you clarify? Most of the studies I've seen reach the opposite conclusion, that parental lifetime income highly predicts the income of their children. For example, a child of parents in the 90th percentile has an expected income of over $100K, while a child of parents in the 10th percentile has an expected income of less than $40K. http://www.theatlantic.com/business/archive/2015/07/america-social-mobility-parents-income/399311/ http://www.theatlantic.com/business/archive/2015/07/america-... (which comes from http://inequality.stanford.edu/sites/default/files/economic_mobility_short.pdf http://inequality.stanford.edu/sites/default/files/economic_...) Income isn't wealth, but I'd be surprised if the correlation isn't strong. What percentage of individuals in the US of 90th percent household wealth came from families in the top half versus bottom half growing up? I don't know off hand, but if I had to bet blindly on outcomes I'd strongly favor betting on the individual who started out better off.
microDude 10y ago
Now imagine the TPP goes through, how much of a footprint will be exposed to similar practices.
czep 10y ago
It's infuriating how these crooks are the ones who get to be rich, while people who play by the rules, work and live honestly, end up being in debt to these criminals. Nice bit of reporting by WSJ. I'm sure they will also get blocked in China, just like when NYT reported on the massive wealth of Party officials. In a few years when people ask "when did the war start?" We might be pointing to this very incident, and many others like it.
- joe_the_user 10y ago
  Which crooks shall we start with first? The Chinese crooks, the American crooks or perhaps crooks of a less powerful third nation? IE, US brokerages have engaged in similar or even more baldly speculative dodges - NYTimes: "Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars." http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=all&_r=0 http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum... And whether any of this actually illegal is to-be-determined but we're dealing with the people who make the laws, fighting with other people who also make their laws, right?
- deleted 10y ago
  [deleted]
profeta 10y ago
the smoking gun graph[0] is missing how much of MX al is sold to the US. [0] well, they split them into several images http://si.wsj.net/public/resources/images/BN-PS529_201609_G_20160907120101.jpg http://si.wsj.net/public/resources/images/BN-PS529_201609_G_... http://si.wsj.net/public/resources/images/BN-PS530_201609_G_20160907120306.jpg http://si.wsj.net/public/resources/images/BN-PS530_201609_G_... http://si.wsj.net/public/resources/images/BN-PS533_201609_G_20160907120405.jpg http://si.wsj.net/public/resources/images/BN-PS533_201609_G_... http://si.wsj.net/public/resources/images/BN-PT063_201609_G_20160908091611.jpg http://si.wsj.net/public/resources/images/BN-PT063_201609_G_...
hourislate 10y ago
This isn't happening with just Aluminum. All Carbon and Stainless Steel also. The Chinese have hacked and stolen many of the recipes the Steel Industry has spent decades working on. It was one of the reasons Washington had to act. Now they can supply markets where their product was not within spec. Chinese industry gets subsidized by the Chinese Government. Depending on the exact industry they get a certain percentage back on exports. It can be up to 20 % on each export dollar. I once spoke to a shop that made specialized tools for CNC and Screw Machines. The guy told me that if he had a robot that could make the tool from start to finish without anyone needing to even come to work. Just place a load of steel down in the shop and leave. When you get back in a weeks time everything will be made and packed. He still couldn't compete with the Chinese. He says their steel is subsidized, their power is subsidized, they get subsidized to export and by the time you take all the subsidies into account they are 20-30 % cheaper than he can even buy the raw material for. Then to avoid any tariffs they ship product all over the world and move it through other countries. Hence Mexico has become one of these countries, especially when it comes to all metals. They will stop at nothing to destroy Industry in other countries. They have the support of their Government at the highest levels and are encouraged. It is what makes this difficult to police.
- lostlogin 10y ago
  Nicely said. Crap Chinese still is causing problems here in New Zealand - and I thought we were too far away to matter.
liztsai 10y ago
This is a simple duty arbitrage play. For anyone wondering what he actually did wrong, there are a few key points to note. Aluminum (and all materials, really) is exported and imported and duties are paid on the basis of the HS code and (if there is a trade agreement to be taken advantage of) certificates of origin (COO) along with the usual shipping docs. China is inclined to tax exports of primary aluminum because aluminum is power intensive to produce. Thus, exporting raw aluminum ingots whose production has been state subsidized is basically akin to exporting (even giving away!) power. However, China relaxed export duties on certain 'finished' aluminum products. This opened up a loophole where Chinese companies could make 'finished aluminum products' which are classified under a different HS code than primary aluminum and ship it out of the country, duty free. In reality, this meant that they sloppily made it into whatever shape wasn't ingots or T bars rather than into any concretely useful shapes. These 'finished' products then made their way out to places like Mexico and more recently Vietnam. Since they were still carrying Chinese COOs, they couldn't be directly re-exported to the US (or any other country without a FTA with China). They needed to be remelted/recycled into 'raw aluminum' and given a new COO (or for the less scrupulous given a fake COO...), hence the need for the Mexico factory. So...if cost to ship to Mexico + cost to extrude and remelt < difference in Chinese VS Western manufacturing costs + duties on primary aluminum ... this is a profitable (and legal) trade!
- brandmeyer 10y ago
  I'm missing the part of this scheme where you need to have a large cache of aluminum in any form to make this work. Related: The Chinese regulations on export of neodymium magnets is similarly structured. Exporting the magnets or the raw metallic ingredients is subject to high tariffs, but export of finished products using them is not. This isn't just about energy exports though, it's straight up protectionism of their manufacturing businesses.
  - joe_the_user 10y ago
    Well, If the aluminum they're getting is worth more than they're paying for it, they want to buy and export as much as possible. They then store it until they can sell it at the appropriate price. Especially considering that you'd assume the loophole is going to close sooner or later.
spectrum1234 10y ago
What an awesome article title
awqrre 10y ago
At least it's not a giant pile of cocaine I guess... Edit: that was a bit of sarcasm, as these usually don't get reported...
known 10y ago
What's wrong with it? https://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves https://en.wikipedia.org/wiki/Global_strategic_petroleum_res...
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234 points by nkurz 10y ago

The article mentions that aluminum prices have fallen 50% since 2010. However, prices were double historical normal from 2005 to 2011. The price lowering was just a return to normal prices.

rrggrr 10y ago
This is correct. Three factors drove the bubble in aluminum and other commodities: Increased energy expense, speculative and fraudulent investment, and some increased consumption. However, three factors are likely to continue to drive aluminum and other commodities under the mean: Lack of confidence, spectacular debt burdens and deflationary trends across commodity price inputs. Its likely to be years before a stable mean is established, despite the occasional mirage of stability from month to month.
- at-fates-hands 10y ago
  I remember working at a bike shop around this time and within 6 months all of our bikes went up in price like $50-100. I had no idea what was going on and asked one of corporate office guys what the deal was. He said between India and China, they had both put huge strains on steel, aluminum and titanium and it was causing a shortage for bike manufacturers, so they were raising their prices since the prices for these metals had skyrocketed in recent months. Good to know it was a little more to it, but interesting nonetheless.
  - deleted 10y ago
    [deleted]
- joe_the_user 10y ago
  Indeed, one of the motivations for speculation has been the continuous (electronic) printing of money by the US and other governments (combined with massive infrastructure projects by China), leading many investors to logically-if-naively believe that commodity prices (especially gold) would follow "real" money. The problem is that all commodities are actually produced and consumed and speculation simply causes disproportionate production followed by a crash. And, of course, there are a number of ways to do speculation in a bear market but altogether, more money is going to be made in a bull market. Even more, since the money coming out of quantitative easing isn't going into consumer goods (that much), it has to go into speculation and it thus seems likely the various kinds of market imbalances will or get worse.

davesque 10y ago

I'm sure this guy will just get a little slap on the wrist.

JoeAltmaier 10y ago
Its not clear he's done anything wrong. Shipping Aluminum to Mexico? What's the problem.
- CountSessine 10y ago
  That's what I was thinking. If China wants to subsidize American manufacturing by selling us cheap aluminum, what's the problem? This is is bad if you're part of the tiny American aluminum mining and extraction business, but it's probably pretty fantastic if you're part of the huge and important industries making anything with aluminum, like cars and airplanes. Why do we want to protect primary industries when historically there's been so much more money in secondary industries?
  - ittekimasu 10y ago
    Do you know the story of how the British went from petty traders to "greatness"?
    - lostlogin 10y ago
      And then back again. That's empires for you.
      - CPLX 10y ago
        Of course, one could argue that those of us in the US are in fact the British Empire, the narrative slightly complicated by that civil war period of 1776-1812 of course.
        ittekimasu 10y ago

monopolyshit 10y ago

Good timing to distract public from Clinton's scandal.

lostlogin 10y ago
Are you referring to the one which she has been cleared of pretty comprehensively? I can't stand her but the faux email scandal is tiresome.

bjfish 10y ago

This reminds me of the 2013 Goldman Sachs aluminum story: http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=1 http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum...

honkhonkpants 10y ago
Yeah but those guys are white.

MrZongle2 10y ago

“My Moby-Dick has been Zhongwang,” says Mr. Henderson, president of the Aluminum Extruders Council, a U.S. trade group. Without context, I would have thought that a Markov text generator was on the loose.

kwhitefoot 10y ago
Really? Why? Mr. Henderson is simply claiming that hist situation bears some similarities to Captain Ahab's. It might or might not really be true but the statement is clear enough for anyone moderately well read in English language literature.
- MrZongle2 10y ago
  It's not that the reference is obtuse (it isn't), it's that one usually doesn't encounter "Moby Dick", "aluminum extruders" and "Zhongwang" in the same sentence. It can give one pause, in the same manner as if the sentence were full of alliteration.

ryanmarsh 10y ago

One of the reader comments said: "Extradite him to the US and then prosecute him. Getting rich without any merits is horrible." and I thought: you must be new here

malchow 10y ago
Really? Wouldn't you think U.S. has the lowest proportion of "rich without merits" as %age of rich of any nation in the world – and indeed in history of world?
- wskinner 10y ago
  Not sure why you're getting downvoted. This is a totally valid point. For the downvoters: malchow's claim is that in the US, rich people are more likely to be businessmen or people who have otherwise worked for their wealth, rather than simply having been born to the right parents.
  - givinguflac 10y ago
    I agree with what you're saying, but at the same time it's a hell of a lot easier to end up a wealthy adult if you come from a wealthy family. "Small" loans from family etc.
    - djrogers 10y ago
      Roughly 80% of American millionaires are the first generation of their families to be wealthy. Here's the surprising part - most of them get there by working hard and spending less money than they earn... [1] https://www.nytimes.com/books/first/s/stanley-millionaire.html https://www.nytimes.com/books/first/s/stanley-millionaire.ht...
      - nkurz 10y ago
        I like your link, but I couldn't find that particular statistic within it. Could you clarify? Most of the studies I've seen reach the opposite conclusion, that parental lifetime income highly predicts the income of their children. For example, a child of parents in the 90th percentile has an expected income of over $100K, while a child of parents in the 10th percentile has an expected income of less than $40K. http://www.theatlantic.com/business/archive/2015/07/america-social-mobility-parents-income/399311/ http://www.theatlantic.com/business/archive/2015/07/america-... (which comes from http://inequality.stanford.edu/sites/default/files/economic_mobility_short.pdf http://inequality.stanford.edu/sites/default/files/economic_...) Income isn't wealth, but I'd be surprised if the correlation isn't strong. What percentage of individuals in the US of 90th percent household wealth came from families in the top half versus bottom half growing up? I don't know off hand, but if I had to bet blindly on outcomes I'd strongly favor betting on the individual who started out better off.

microDude 10y ago

Now imagine the TPP goes through, how much of a footprint will be exposed to similar practices.

czep 10y ago

It's infuriating how these crooks are the ones who get to be rich, while people who play by the rules, work and live honestly, end up being in debt to these criminals. Nice bit of reporting by WSJ. I'm sure they will also get blocked in China, just like when NYT reported on the massive wealth of Party officials. In a few years when people ask "when did the war start?" We might be pointing to this very incident, and many others like it.

joe_the_user 10y ago
Which crooks shall we start with first? The Chinese crooks, the American crooks or perhaps crooks of a less powerful third nation? IE, US brokerages have engaged in similar or even more baldly speculative dodges - NYTimes: "Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars." http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=all&_r=0 http://www.nytimes.com/2013/07/21/business/a-shuffle-of-alum... And whether any of this actually illegal is to-be-determined but we're dealing with the people who make the laws, fighting with other people who also make their laws, right?
deleted 10y ago
[deleted]

profeta 10y ago

the smoking gun graph[0] is missing how much of MX al is sold to the US. [0] well, they split them into several images http://si.wsj.net/public/resources/images/BN-PS529_201609_G_20160907120101.jpg http://si.wsj.net/public/resources/images/BN-PS529_201609_G_... http://si.wsj.net/public/resources/images/BN-PS530_201609_G_20160907120306.jpg http://si.wsj.net/public/resources/images/BN-PS530_201609_G_... http://si.wsj.net/public/resources/images/BN-PS533_201609_G_20160907120405.jpg http://si.wsj.net/public/resources/images/BN-PS533_201609_G_... http://si.wsj.net/public/resources/images/BN-PT063_201609_G_20160908091611.jpg http://si.wsj.net/public/resources/images/BN-PT063_201609_G_...

hourislate 10y ago

This isn't happening with just Aluminum. All Carbon and Stainless Steel also. The Chinese have hacked and stolen many of the recipes the Steel Industry has spent decades working on. It was one of the reasons Washington had to act. Now they can supply markets where their product was not within spec. Chinese industry gets subsidized by the Chinese Government. Depending on the exact industry they get a certain percentage back on exports. It can be up to 20 % on each export dollar. I once spoke to a shop that made specialized tools for CNC and Screw Machines. The guy told me that if he had a robot that could make the tool from start to finish without anyone needing to even come to work. Just place a load of steel down in the shop and leave. When you get back in a weeks time everything will be made and packed. He still couldn't compete with the Chinese. He says their steel is subsidized, their power is subsidized, they get subsidized to export and by the time you take all the subsidies into account they are 20-30 % cheaper than he can even buy the raw material for. Then to avoid any tariffs they ship product all over the world and move it through other countries. Hence Mexico has become one of these countries, especially when it comes to all metals. They will stop at nothing to destroy Industry in other countries. They have the support of their Government at the highest levels and are encouraged. It is what makes this difficult to police.

lostlogin 10y ago
Nicely said. Crap Chinese still is causing problems here in New Zealand - and I thought we were too far away to matter.

liztsai 10y ago

This is a simple duty arbitrage play. For anyone wondering what he actually did wrong, there are a few key points to note. Aluminum (and all materials, really) is exported and imported and duties are paid on the basis of the HS code and (if there is a trade agreement to be taken advantage of) certificates of origin (COO) along with the usual shipping docs. China is inclined to tax exports of primary aluminum because aluminum is power intensive to produce. Thus, exporting raw aluminum ingots whose production has been state subsidized is basically akin to exporting (even giving away!) power. However, China relaxed export duties on certain 'finished' aluminum products. This opened up a loophole where Chinese companies could make 'finished aluminum products' which are classified under a different HS code than primary aluminum and ship it out of the country, duty free. In reality, this meant that they sloppily made it into whatever shape wasn't ingots or T bars rather than into any concretely useful shapes. These 'finished' products then made their way out to places like Mexico and more recently Vietnam. Since they were still carrying Chinese COOs, they couldn't be directly re-exported to the US (or any other country without a FTA with China). They needed to be remelted/recycled into 'raw aluminum' and given a new COO (or for the less scrupulous given a fake COO...), hence the need for the Mexico factory. So...if cost to ship to Mexico + cost to extrude and remelt < difference in Chinese VS Western manufacturing costs + duties on primary aluminum ... this is a profitable (and legal) trade!

brandmeyer 10y ago
I'm missing the part of this scheme where you need to have a large cache of aluminum in any form to make this work. Related: The Chinese regulations on export of neodymium magnets is similarly structured. Exporting the magnets or the raw metallic ingredients is subject to high tariffs, but export of finished products using them is not. This isn't just about energy exports though, it's straight up protectionism of their manufacturing businesses.
- joe_the_user 10y ago
  Well, If the aluminum they're getting is worth more than they're paying for it, they want to buy and export as much as possible. They then store it until they can sell it at the appropriate price. Especially considering that you'd assume the loophole is going to close sooner or later.

spectrum1234 10y ago

What an awesome article title

awqrre 10y ago

At least it's not a giant pile of cocaine I guess... Edit: that was a bit of sarcasm, as these usually don't get reported...

known 10y ago

What's wrong with it? https://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves https://en.wikipedia.org/wiki/Global_strategic_petroleum_res...

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