Singapore 30/09/2016 - The Shanghai Futures Exchange spot aluminium price could hold above 12,000 yuan after holidays in China next week amid a persistently tight spot market and improved demand, market participants said.
The Chinese aluminium market has been beset by transport disruptions after Beijing last Wednesday introduced harsher regulations to curb the overloading of goods on trucks.
Among other things, this has resulted in delays in deliveries of electrolytic aluminium while logistics firms renegotiate freight rates with users and more shipments are diverted to the railways.
"The spot supply tightness has yet to be resolved. We expect the transport problem to persist for a while after the holidays. Stock arrivals after the holidays will unlikely be within expectations," Minmetals Jingyi Futures said in a report on Friday. "The SHFE aluminium price should remain high."
The SHFE November aluminium contract fell 90 yuan to close at 12,500 yuan per tonne today but it has held above 12,000 yuan since last Friday. Chinese markets will close for a week-long national day holidays from October 1.
Aluminium inventories in five major Chinese cities - Shanghai, Wuxi, Hangzhou, Gongyi and Nanhai - fell a "dramatic" 61,000 tonnes week-on-week to 216,000 tonnes on September 29, Shanghai Metals Market (SMM) said.
Stock levels had fallen a combined 37,000 tonnes over two weeks to 277,000 tonnes as of September 23 due to the transport problems, according to an SMM survey. They had been as high as 928,000 tonnes in the week of March 14.
"Inventory is very low… across the country. Stocks are still not coming in as expected," a Shanghai-based trader said.
The tightness is particularly acute in the east, a Shandong-based metals analyst said.
"There are stocks in western China [such as in the production base of] Xinjiang. But they are not able to make their way across to eastern China due to the transport issues," he said.
The spot tightness coincides with strong demand during the current September-October peak period and stockpiling by users ahead of China's national day holidays.
"SHFE aluminium can stay above 12,000 yuan after the holidays. This is on support from both supply and demand factors," a Beijing-based metals analyst said.
On Friday, the trend in deliverable aluminium inventories at Shanghai Futures Exchange-registered warehouses was similar to that of spot stocks. SHFE stocks plunged 19,302 tonnes or 18.7 percent week-on-week to 83,775 tonnes as of September 30, making it the third straight week of decrease.
This took the cumulative decline over the past three weeks to 42,100 tonnes or 33.4 percent. As of Friday, inventories are less than a quarter of the mid-March total of 341,615 tonnes.
SHFE aluminium has remained in backwardation since late April this year - production restarts and new capacity commissioning in the country have not been as fast as anticipated due to tight funds.
The backwardated spread between the SHFE October contract and the November contract expanded to 590 yuan at Friday's close from 490 yuan at Monday's close.
The most active SHFE November aluminium contract closed 125 yuan lower at 12,465 yuan on Friday amid pre-holiday book-squaring.
(Editing by Mark Shaw)