Did This Chinese Billionaire Hide 6% Of The World's Aluminum In Mexico To Cheat The Markets?

Row of aluminum rolls. A flight revealed $2b-worth of the metal had been hiding in Mexico for some time. Pavel L Photo and Video/Shutterstock

Robin Andrews 12 Sep 2016, 17:24

After iron, aluminum is the most commonly used metal, and as such it’s an incredibly valuable commodity. Over the last few years, China has driven up the global output of aluminum considerably, and there are hints that one particular man is gaming the market.

According to an investigation by the Wall Street Journal, Chinese billionaire Liu Zhongtian – the founder of metal conglomerate China Zhongwang Holdings – has been using a company-owned factory in Mexico to hide a huge proportion of the world’s aluminum supply. That way, he’s able to evade trade restrictions associated with China while claiming tax benefits doled out to Mexico under the North American Free Trade Agreement (NAFTA).

The story begins in 2010. After suspicions of corner-cutting were leveled at several Chinese companies (including affiliates of China Zhongwan) by the US Commerce Department, Mr. Liu’s aluminum shipments to the US fell sharply, as did his profit margins.

Fast forward to 2014, and a pilot commissioned by a Californian aluminum executive flew over the town of San José Iturbide. He spotted roughly 1 million tonnes (1.1 million tons) of aluminum stacked behind a cordon of barbed-wire fences, which would represent about 6 percent of the world’s current supply.

Several high-flying American aluminum executives think Mr Liu secretly controls the Mexican factory that is holding this cache. By shipping the commodity through Mexico, its true Chinese origins would be disguised in what's called “transshipping”. This way, he could avoid the Commerce Department’s extremely high tariffs on imported Chinese aluminum, claims the Journal.

Liu has not commented on these accusations officially, claiming he has no business interests in Mexico. However, a business associate named Po-Chi “Eric” Shen has commented extensively on his ties with Liu, specifically ones in Mexico.

Molten aluminum. Maksim_Gusev/Shutterstock

Mr Shen established Aluminicaste in San José Iturbide, a company whose ownership transferred to Mr Liu’s son in 2013. Over time, the US authorities were becoming convinced that the aluminum appearing at Aluminicaste’s plant in Mexico was secretly coming from China. Mr Shen’s assets were seized, but Mr Liu and China Zhongwang remain essentially unharmed.

Shortly after the plane spotted the aluminum stockpile, it was covered with tarp and hay, and moved, sources told the Journal. It will soon be shipped to Vietnam, where it will be resold to the US via California-based Perfectus Aluminum Inc. – a company started by none other than Mr Liu’s son.

Chinese companies have already been accused of gaming the markets by flooding the world with cheap steel. And this latest saga will likely ramp up tensions between the US and China further. Right now, it looks like climate change is the only thing both nations can agree on.

[H/T: Wall Street Journal]

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