Stocks of primary aluminium registered with the world's big three exchanges—London Metal Exchange (LME), NYMEX and the Shanghai Futures Exchange (SHFE)—rose by 26,464t to 738,394t at the end of December. They ended the year showing only a small 13,805t net decline.
Exchange stocks are only part of the overall reported inventory picture and total stocks are still set to record a big net decline over 2006. In the year through November they were down by 347,000t, due to sharp falls in producer inventories and in Japanese port stocks—the other two components of the bigger picture.
US Feast…
The driver of higher exchange inventories in December was the US. Stocks registered with LME warehouses in the country rose by 30,050t last month—the first monthly rise since February.
Similarly, tonnage warranted in the NYMEX system rose by 9,380t to 21,387t, which was the only monthly rise of 2006. (NYMEX-warranted stocks ended the year still showing a yearly decline of 40,630t, which was the main reason that global exchange stocks fell at all over the course of 2006.)
The build in US stocks has been accompanied by slumping premiums in the local market with Platts' assessment of the Midwest premium sinking to 3-year lows (see item below).
Slow activity in key sectors such as automotive and residential housing has combined with the usual year-end de-stocking to generate a local surplus. The swing of the nearby LME market structure back to backwardation has sucked some of this into exchange warehouses in the country.
It's worth noting that local players told Platts they are not expecting any significant turnaround in the physical market in the short term at least.
…European Famine
In stark contrast to developments in the US, LME-registered tonnage in Europe continued to shrink in December.
Stocks in the UK fell another 1,500t in December, bringing the 2006 decline to 30,550t and leaving just a marginal 1,275t of exchange-registered tonnage at the end of the period.
Similarly, those at the two Swedish locations fell by 3,725t in December and by 19,300t over 2006 as a whole to 28,125t. It's worth noting that cancelled tonnage in the country at 4,300t represented 15.3% of total registered tonnage at the end of the month—a ratio that was considerably higher than the 6.5% across the whole LME system.
Italian locations still held 23,325t of registered metal—all of it at Trieste—but other European locations, including the likes of Rotterdam, Antwerp and Hamburg, lost another 5,725t in December, bringing the full-year decline to 89,475t. Registered tonnage at the end of the month/year was a very low looking 50,075t, of which 4,550t were cancelled.
This attrition of European exchange tonnage has not taken place in a vacuum. It has been matched by a sharp reduction in producer inventories of unwrought metal.
At the end of November—the last available figures from the International Aluminium Institute (IAI)—European producer stocks had fallen by 189,000t from the start of the year to 557,000t.
That made the region the single biggest driver of the overall 248,000t decline in global producer inventories (outside China), which in turn was the biggest driver of the overall fall in reported stocks in the Jan-Nov period.
The impact of the stocks falls in Europe was very evident in the early-December spike in physical premiums and should result in a re-balancing from both the Asian and Americas markets.
Although LME-registered tonnage at Asian locations rose by a net 1,875t last month, Singapore saw heavy cancellation activity, which has been linked to metal being moved to Europe.
Asian locations saw registered tonnage rise by a massive 159,000t last year but that at least partly reflected the continued free flow of exports from China—something which is widely expected to become a lesser factor this year as the most recent hike in the export
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