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!
A similar, and perhaps more amusing, situation happened in Canada a few years ago. We have a 245.5% import tariff on cheese (why? Because dairy farmers are more important than poor people, apparently) but there was a much lower tax on "food preparations", including packaged pizza toppings.
So companies would package up "pizza topping kits" in the USA, import them to Canada as "food preparations"... and then remove the cheese, which could be sold separately for far more than the cost of the complete kit.
After a couple years, the classification rules were amended to exclude anything containing cheese from the "food preparations" tariff class.
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.
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.
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.
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?
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.
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.
Sounds like he's already been hit where it hurts. If his fortune is ~$3b and the stockpile is ~$6b, then he's losing a ton of money every day to interest and opportunity cost and shipping it back to Vietnam and however much the price has fallen since he bought it all, which could be a large fraction. Given how his partners have the knives out for him, he may not even have that $3b. One can stockpile, but as always, how does one bury the body?
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.
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."
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?
[+] [-] liztsai|9 years ago|reply
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!
[+] [-] cperciva|9 years ago|reply
So companies would package up "pizza topping kits" in the USA, import them to Canada as "food preparations"... and then remove the cheese, which could be sold separately for far more than the cost of the complete kit.
After a couple years, the classification rules were amended to exclude anything containing cheese from the "food preparations" tariff class.
[+] [-] brandmeyer|9 years ago|reply
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.
[+] [-] wangchow|9 years ago|reply
[+] [-] rwmj|9 years ago|reply
[+] [-] Bakary|9 years ago|reply
[+] [-] fredgrott|9 years ago|reply
[+] [-] danielvf|9 years ago|reply
[+] [-] rrggrr|9 years ago|reply
[+] [-] ryanmarsh|9 years ago|reply
and I thought: you must be new here
[+] [-] malchow|9 years ago|reply
[+] [-] MrZongle2|9 years ago|reply
Without context, I would have thought that a Markov text generator was on the loose.
[+] [-] kwhitefoot|9 years ago|reply
[+] [-] hourislate|9 years ago|reply
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|9 years ago|reply
[+] [-] bjfish|9 years ago|reply
[+] [-] honkhonkpants|9 years ago|reply
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[+] [-] microDude|9 years ago|reply
[+] [-] profeta|9 years ago|reply
[0] well, they split them into several images http://si.wsj.net/public/resources/images/BN-PS529_201609_G_... http://si.wsj.net/public/resources/images/BN-PS530_201609_G_... http://si.wsj.net/public/resources/images/BN-PS533_201609_G_... http://si.wsj.net/public/resources/images/BN-PT063_201609_G_...
[+] [-] davesque|9 years ago|reply
[+] [-] JoeAltmaier|9 years ago|reply
[+] [-] aab0|9 years ago|reply
[+] [-] known|9 years ago|reply
[+] [-] spectrum1234|9 years ago|reply
[+] [-] thinsmuddmen|9 years ago|reply
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[+] [-] postsalmeo|9 years ago|reply
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[+] [-] odspinpa|9 years ago|reply
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[+] [-] awqrre|9 years ago|reply
[+] [-] czep|9 years ago|reply
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|9 years ago|reply
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-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?
[+] [-] unknown|9 years ago|reply
[deleted]
[+] [-] monopolyshit|9 years ago|reply
[+] [-] lostlogin|9 years ago|reply