London 07/06/2016 - Shanghai bonded stocks of copper and zinc increased in May while aluminium inventories dipped and those of nickel were largely unchanged.
Bonded copper stocks climbed at a slower pace compared with the previous month - they rose five percent to 610,000-640,000 tonnes at the end of May from 580,000-610,000 tonnes in April, according to a FastMarkets survey of multiple warehouse companies.
The slower rate of increase last month mainly stems from an improved arbitrage window - the loss incurred when importing copper to the domestic market has narrowed, with cathodes booked under long-term contracts having been diverted to nearby LME-listed warehouses from Shanghai.
Premiums on copper in Shanghai's bonded zone have worsened to $50 per tonne on average in May from $55.625 in April - rates briefly dropped to 2013 lows in mid-May but have since recovered to $40-50, according to FastMarkets historical data.
"Premiums were sluggish in Shanghai at around $40-50 per tonne at the end of May - some distressed sellers are even offering at $20-30. Those who signed long-term contracts are better off changing their shipment destination to nearby LME warehouses," a copper trader in Shanghai said.
"We have seen less material coming into our sheds and most of that is heading to our branches in Southeast Asia," a warehouse source said.
Copper outflows into the domestic market in mid-May reflected an improved arbitrage but the total volume was not significant and partly offset some of the inflows, warehouse sources noted.
The recent inflows of cathodes into the bonded zone followed sizeable cancellations at LME-listed sheds but sources said the rationale for it remains unclear.
"I am quite surprised to see some of the cancelled tonnages flow to our warehouses in Shanghai... You have sluggish premiums and a wide backwardation - it does not make sense to ship it to Shanghai," the first warehouse source said.
Zinc stocks rose to 110,000-125,000 tonnes at the end of May from 105,000-120,000 tonnes a month previously, having dropped to a low of 90,000-100,000 tonnes in the third week of May.
"Zinc trading was very illiquid in May but there is some end-user demand that explains the stock drawdown. But the inflow more than offset the outflow, which pushed the total number up," a well-informed source said.
Aluminium stocks dropped for the first time since January to 33,000-38,000 tonnes at the end of May, down 2,000 tonnes from a month prior.
This could reflect a temporary opening of the LME-SHFE arbitrage window, warehouse sources said. Some traders have asked warehousers to clear customs and may have transferred metal to Huangpu in Guangdong province to take advantage of higher domestic premiums.
Nickel stocks were large unchanged in May, with inflows and outflows more or less balanced - stocks were last at 80,000-90,000 tonnes.
(Additional reporting by Meimei Qin, edited by Mark Shaw)