Singapore 27/05/2016 - Deliverable copper stocks at warehouses in the Shanghai Futures Exchange system fell 36,122 tonnes or 14 percent week-on-week to 221,212 tonnes as of May 27, according to data from the exchange.
This is the third consecutive week in which inventories have declined. This week, Zhongchu Dachang in Shanghai saw the most copper exits, with 10,787 tonnes leaving its sheds.
Excluding the May 2 week, SHFE copper stocks have declined on a weekly-basis since the week of March 21. The fall this week takes the year-to-date inventory decline to 173,565 tonnes or 44 percent over the past 10 weeks.
The drop was within expectations given that the arbitrage window between Shanghai and London remained closed, as it has been since late-January, market participants said.
It also reflects improved demand during the April-May peak period and exports by some smelters to LME-listed warehouses in Asia, a Shanghai-based futures trader.
Chinese copper smelters have continued to deliver metal into LME sheds in Southeast Asia because of attractive warehouse incentives, sources have told FastMarkets.
Metal has been flowing out of key markets - in particular China - into the Asian LME system for the past two months. While this trend has slowed in recent weeks, domestic smelters and some large position holders intend to continue making deliveries, they said.
The declining trend in SHFE stocks may reverse in June-July, however, when China enters a traditional lull, industry watchers said. And expectations are so far for copper demand to slow in the second half of this year.
Meanwhile, SHFE aluminium stocks fell nine percent or 24,406 tonnes week-on-week to 246,627 tonnes this week.
Other than a slight increase of 513 tonnes in the week of April 18, SHFE aluminium stocks have been falling consistently for around two months.
The decline - inventories have fallen 27.8 percent or 94,988 tonnes since the week of March 21 - reflects tightness in the domestic market following production cuts among Chinese smelters since last year, industry participants said.
But as with copper, market watchers believe the declining trend in SHFE aluminium stocks could reverse moving into the summer on slower demand, restarts of previously idled smelting capacity and start-up of new capacity.
In other metals, zinc inventories decreased 17,995 tonnes to 230,557 tonnes while lead stocks increased 995 tonnes to 26,845 tonnes this week.
Nickel inventories climbed 1,080 tonnes to 96,491 tonnes while tin stocks slipped 994 tonnes to 3,085 tonnes.
(Additional reporting by Ian Walker, editing by Mark Shaw)