MI aluminium stocks analysis: Shanghai surge

Stocks registered with the Shanghai Futures Exchange (SHFE) surged by 56,522t to 92,927t in the two-week period to yesterday.

Part of this surge is down to the Lunar New Year holidays last week. The annual holidays in China are often characterised by a local stocks build as consumers take a one or sometimes two-week break.

However, the dramatic nature of the rise may also be a sign of the shifting dynamics of the country's trade in primary aluminium. Exports slumped in January to 22,548t and net exports at 12,695t were the lowest monthly level since April 2004. That was a result of the sharp hike in the export tax on primary metal to 15% effective the start of November.

If this pattern is maintained in the coming period, we'd expect to see continued increases in local inventories, both in terms of what is registered with the SHFE and other commercial stocks.
Meanwhile, inflow into the LME system re-accelerated Thursday from Wednesday's low level. That largely reflected some heavy warranting at Johor in Malaysia. This location has seen 10,000t put on to LME warrant since the start of last week with registered tonnage rising to a current 23,750t.

Elsewhere, inflow continues to be concentrated on US locations. Draws were yesterday still modest, although recent cancellation activity at Rotterdam is now translating into better levels of "out" activity here.

In the US, NYMEX-warranted stocks fell by 645 tons to 21,115 tons (19,155 metric), reflecting draws at Owensboro (601 tons of T-bar) and Toledo (44 tons of sow).