London 06/04/2016 - Stocks stored in Shanghai's bonded zone have continued to climb, with copper, zinc, nickel and aluminium hitting new highs in March.
This was due to unfavourable arbitrage opportunities between the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE), according to a FastMarkets' survey of multiple warehouse companies.
Copper bonded stocks climbed to nine-month high between 530,000 and 550,000 tonnes at the end of March, up 17 percent from 450,000-470,000 tonnes at the end of February.
"We see a lot of shipments arriving at the ports in Yangshan and then loaded into warehouses - some of them were under long-term contracts from producers. We also see some outflows but the amount is less significant," a warehouse source said.
The arbitrage window between the LME and SHFE was narrow in March. Premiums for copper cathodes stored in-warehouse sunk to a nine-month low at $50-60 per tonne at the end of March from $75-85 per tonne in February.
"Some domestic smelters have delivered their cathodes into the bonded zone because they refuse to sell at such low premiums and would rather wait," another warehouse source said.
Despite the closed arbitrage window, some imports to the domestic market were made to meet financing needs, the first warehouse source noted.
"End-user demand [is] not great so I doubt that [the metal] will turn up at the hands of consumers," the source added.
Some sources attributed the gradual decline in LME copper stocks to shipments to China, which are most evident in Shanghai's bonded zone and in SHFE-registered warehouses.
On-warrant stocks on the LME have declined 50,875 tonnes to 144,750 tonnes since the end of February while SHFE stocks rose 108,995 tonnes to 385,899 tonnes over same period.
Zinc stocks in the bonded zone also climbed to 95,000-110,000 tonnes at the end of March from 65,000-80,000 tonnes a month prior, the highest since August 2015.
Most of the inflows are of Korean and Australian brands while there has been little outflow due to a closed arbitrage window, several warehouse sources noted.
"Some big trading houses have signed long-term contracts [for metal that has] gradually arrived in the bonded zone but they will temporarily hold the material and wait for the window to reopen," a third warehouser said.
Nickel total stocks have climbed to 80,000-90,000 tonnes at the end of March from 70,000-80,000 tonnes - total inflows surpassed outflows in the bonded zone.
"Most of the outflows go to SHFE-registered warehouses against the futures contracts," another source at a major warehouser said.
Aluminium stocks also climbed to 45,000-50,000 tonnes from 25,000-30,000 tonnes over the last month.
"It was mostly in the hands of trading houses who move metals around," the first warehouse source said.
(Additional reporting by Meimei Qin, edited by Dalton Barker)