Two years ago, a California aluminum executive commissioned a pilot to fly over the Mexican town of San José Iturbide, at the foot of the Sierra Gorda mountains, and snap aerial photos of a remote desert factory.
He made a startling discovery. Nearly one million metric tons of aluminum sat neatly stacked behind a fortress of barbed-wire fences. The stockpile, worth some $2 billion and representing roughly 6% of the world’s total inventory—enough to churn out 2.2 million Ford F-150s or 77 billion beer cans—quickly became an obsession for the U.S. aluminum industry.
Now it is a new source of tension in U.S.-Chinese trade relations. U.S. executives contend that the mysterious cache was part of a brazen scheme by one of China’s richest men to game the global trade system.
Aluminum-industry representative Jeff Henderson says he is convinced that China Zhongwang Holdings Ltd., a Chinese aluminum giant controlled by billionaire Liu Zhongtian, tried to evade U.S. tariffs by routing aluminum through Mexico to disguise its origins, a tactic known as transshipping.
“My Moby-Dick has been Zhongwang,” says Mr. Henderson, president of the Aluminum Extruders Council, a U.S. trade group.
Mr. Liu, a member of China’s ruling Communist Party, denies any connection to the Mexican aluminum or transshipping. “These things have nothing to do with me,” he said in a June interview at his company’s Liaoning, China, plant, where he lives in an apartment inside the factory. He said he wouldn’t know how to establish a business in Mexico, joking that “in that sort of place, there are a lot of killers with guns.”
Company records, trade documents and legal filings reviewed by The Wall Street Journal, along with interviews of people who have done business with Mr. Liu, raise doubts about his account. They show that hundreds of thousands of tons of aluminum were shipped to Mexico from China through a series of companies, including one owned by Mr. Liu’s son and one by someone who describes himself as a longtime business associate of the Chinese billionaire.
The U.S. Commerce Department says it is investigating the Mexican aluminum’s origin as part of a slew of trade complaints by the U.S. metals industry against China, many of which include allegations of transshipping.
China’s booming industrial production has reordered global markets, few more dramatically than aluminum. Fueled by access to inexpensive electricity and tax breaks, Chinese aluminum output doubled between 2010 and 2015. With local demand slowing, more of it was sent to the U.S., which was importing 40% of its aluminum by 2015—up from only 14% in 2010.
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