SHFE STOCKS - Copper inventories drop 9 pct, sixth straight week of decline

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 20/06/2016 - Deliverable copper stocks at warehouses in the Shanghai Futures Exchange system fell 16,233 tonnes or 8.9 percent week-on-week to 166,105 tonnes as of June 17, according to data from the exchange. This is the sixth consecutive week inventories have declined.

Last week, SIPG Logistics in Shanghai saw the most copper exits, with 9,940 tonnes leaving its sheds.

Excluding the May 2 week, SHFE copper stocks have declined on a weekly-basis since the week of March 21. This week takes the year-to-date inventory decline to 228,672 tonnes or 57.9 percent over the past thirteen weeks.

The decline is due to the arbitrage window between Shanghai and London staying mostly closed since late-January, improved demand during the April-May peak period demand and exports by some smelters to London Metal Exchange warehouses in Asia.

But market participants reckon the dip in SHFE stocks could slow or even reverse later in June or July.

“The market is looking for any clues or indications to the Chinese story of restocking as the arb has begun to look supportive of late,” said a London-based trader. 

Following a large drop in LME copper price, the Shanghai price had closed between parity and a small premium to the LME (plus logistical premiums) early last week.

Should the arb ratio continue higher, Chinese imports and demand are likely to increase, traders said.

But since last Wednesday, the arb has stayed closed based on a cost, insurance and freight (CIF) premium in Shanghai of $50.

“Once the arb ratio opens, a lot of stocks will go back to China. But we think if the arb window opens for a few days, it will close very quickly and premiums will drop fast,” said a Shanghai-based trader.

There remains a huge amount of bonded copper stocks in Shanghai of around 610,000-640,000 tonnes at end-May, according to FastMarkets survey.

SHFE stocks could also increase as demand slows down during the summer period in June-July, industry watchers said.

Meanwhile, SHFE aluminium stocks fell 22,928 tonnes or 10.1 percent week-on-week to 204,735 tonnes last week.

Other than a slight increase of 513 tonnes in the week of April 18, SHFE aluminium stocks have been falling for almost three months.

The decline - inventories have fallen 40.1 percent or 136,880 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 similar to copper, market watchers reckoned the declining trend for SHFE aluminium stocks could reverse moving into summer on slower demand, restarts of previously idled smelting capacity and start-up of new production capacity.

In other metals, zinc inventories decreased 4,817 tonnes to 218,317 tonnes, while lead increased 2,961 tonnes to 31,441 tonnes last week.

Nickel inventories gained 984 tonnes to 97,954 tonnes, while tin stocks slipped 129 tonnes to 2,426 tonnes.

(Additional reporting by Ian Walker)



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