Singapore 11/10/2016 - The aluminium price on the Shanghai Futures Exchange is expected to move higher in the near-term as transportation disruptions in China continue to delay stock arrivals and keep domestic spot supply tight in the eastern and southern regions post-Chinese national day holidays.
Transport woes in the Chinese aluminium market have yet to ease after the holidays following Beijing’s decision in late September to introduce harsher regulations to curb the overloading of goods on trucks.
The stock arrivals in major cities in China have fallen below expectations after the holidays by about 20,000 tonnes due to delivery delays, Liu Xiaolei, an aluminium analyst at Shanghai Metals Market (SMM), told FastMarkets.
Aluminium inventories in five major Chinese cities - Shanghai, Wuxi, Hangzhou, Gongyi and Nanhai – had risen by 44,000 tonnes since September 29 to 260,000 tonnes on October 10, according to SMM’s survey.
Stock arrivals in October after China’s week-long national day holidays in the past few years had typically been at around 60,000 tonnes, Liu noted.
“The transportation disruptions may take till the end of this month to be resolved,” he said.
Beijing's latest truck transportation rules have caused delays in deliveries of electrolytic aluminium as logistics firms lift freight rates for truck deliveries while goods which were previously shipped by trucks are diverted to already overtaxed railways.
Inventories in western China, particularly from the production base of Xinjiang are not able to make their way across the country, sources said.
The lower-than-expected stock arrivals after the holidays have spurred expectations of higher aluminium prices in the near-term, China’s Galaxy Resources said in a report on Monday, October 10.
The still tight domestic spot supply could push the SHFE November aluminium contract price to above 13,000 yuan per tonne, the Beijing-based futures broker forecasted. The most active SHFE aluminium contract price had last hit 13,000 yuan in late April this year.
The SHFE November aluminium price was recently at 12,920 yuan on Tuesday, up 55 yuan from Monday’s closing price.
Low aluminium inventory levels are supporting domestic aluminium prices, Minmetals Jingyi Futures said in a report on Tuesday, adding that it remains optimistic on domestic aluminium prices in the near-term.
Current aluminium stock levels are considered low especially when compared to earlier this year whereby inventories were at as high as 928,000 tonnes in the week of March 14.
But towards the end of the year, market participants reckon that SHFE aluminium prices are likely to come under pressure as production restarts and the commissioning of new capacity eases the current spot supply tightness and adds to domestic aluminium supply.
SMM estimates that about 1-1.5 million tonnes per year of new capacity and production restarts had taken place in the third quarter, with another 1 million tonnes per year likely to come in the fourth quarter.
Production restarts and new capacity commissioning in the country have not been as fast as anticipated so far this year due to tight funds among companies.
But this problem has started easing for companies recently after domestic aluminium prices continued to stay strong, SMM's Liu noted.
“The cash positions of smelters are better now due to the aluminium price increase. Some smelters which had previously shuttered production lines are looking to restart more lines,” he said.
The most active SHFE aluminium contract price has rebounded from as low as 9,555 yuan in November last year to stay above 11,500 yuan since late March this year.