Singapore 20/05/2016 - Deliverable aluminium stocks on the Shanghai Futures Exchange continue to trend lower, with inventories falling 7.6 percent or 22,154 tonnes week-on-week to 271,033 tonnes as at May 20, according to exchange data.
Other than a slight increase of 513 tonnes in the week of April 18, SHFE aluminium stocks have been falling for two months.
The decline - inventories have fallen 20.7 percent or 70,582 tonnes since the week of March 21 - reflects tightness in the domestic market, industry participants said.
Tightness in the domestic aluminium market during the second quarter had been anticipated by analysts after production cuts among Chinese aluminium smelters since last year.
With April-May being the peak demand period in the industry, supply was expected to fall short of demand during the second quarter despite the restart od some idled capacity due to improved aluminium prices and the start-up of new capacity.
The pace of restarts is being checked by high production costs, tight credit and uncertainty over future price direction.
"Supply is tight in the physical market now and that is expected to support domestic aluminium prices," a Shanghai-based aluminium analyst said.
Similarly, aluminium stocks in China's five major cities - Shanghai, Wuxi, Hangzhou, Gongyi and Nanhai - has fallen 38.6 percent to 570,000 tonnes as at May 13 from a first-half peak of 928,000 tonnes in the week of March 14, according to Shanghai Metals Market.
Still, the downward trend in inventories could reverse in another month or two, a metals analyst with a Shandong-based futures brokerage suggested.
"There will be more new smelting capacity being commissioned and demand will be slow during the summer lull," he said.
The June-July period is typically the off-peak period for demand in China.
The SHFE July aluminium contract closed at 12,435 yuan per tonne on Friday, up 110 yuan from the previous day's close. On March 21, the May contract had closed at 11,545 yuan.
(Editing by Mark Shaw)