London 04/05/2016 - Shanghai bonded stocks of copper and zinc continued to climb in April due to unfavourable arbitrage between the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE).
Bonded copper stocks rose 10 percent to 580,000-610,000 tonnes by the end of April from 530,000-550,000 tonnes a month previously, according to a FastMarkets survey of multiple warehouse companies.
"The trading of copper is not active - buying interest is quite thin so lots of copper entered warehouses," a warehouse source in Shanghai said.
Monthly average premiums for bonded material were $50-61.25 per tonne in April, down from $62-73 in March - the LME-SHFE arbitrage window was closed while end-user demand was no better last month.
"There has been outflow of metals but mostly for financing deals," a second warehouser said. "Still, credit lines are pretty tight in places such as Zhejiang, Shanghai and Jiangsu. It's still possible for some clients in northern China to get letters of credits (LCs) using warehouse receipts issued by a reliable warehouse."
Metal has also flowed into nearby LME-registered warehouses due to sluggish domestic premiums and attractive incentives offered by warehouse companies, sources also noted.
The pace of the increase of Shanghai bonded copper stocks might slow in the next few months should smelters and trading houses divert their metals to nearby LME sheds if the arbitrage window remains closed and incentives are still attractive, market participants said.
Copper stocks in Asian LME sheds rose 34,650 tonnes in April, a move that many attribute to Chinese smelters and trading houses.
Meanwhile, bonded zinc stocks have climbed to 105,000-120,000 tonnes at the end of last month from 95,000-110,000 tonnes at the end of March, according to multiple warehouse sources.
The arbitrage window between the London and Shanghai markets was mostly closed in April and trading volumes remained thin.
"We have seen some new entrants to the market that have imported zinc to domestic warehouses for financing purposes," a third warehouser said. "The banks involved were mostly smaller ones... it's not the big four or international banks."
Nickel stocks stood at 80,000-90,000 tonnes, unchanged from the end of March. Many seaborne cargoes have directly transferred to SHFE warehouses.
"SHFE warehouses are filled with nickel and it's possible that they are going to expand the storage again. With the huge open interest for the SHFE nickel contract, it's unlikely that more nickel will come to the bonded zone," the warehouser added.
Aluminium stocks were last at 35,000-40,000 tonnes, down from 45,000-50,000 tonne at the end of March.
(Additional reporting by Meimei Qin, edited by Mark Shaw)