China's private aluminium stocks seen up more than 40 pct

* China private aluminium stocks seen up more than 40 pct

* Private stocks seen around 1 million tonnes

* Stocks are still rising on high output

* Stocks could squeeze Chinese prices and reduce imports

By Polly Yam

HONG KONG, Nov 12 (Reuters) - China's privately held stocks of primary aluminium may have increased more than 40 percent from August to about a million tonnes, following high imports and increased production, traders and smelter sources said on Thursday.

The stocks, which include 272,618 tonnes in Shanghai exchange's warehouses as of last Friday but exclude state holdings, threaten to weigh on Chinese prices and trim imports, which halved in October.[ID:nnHKG297266]

They are equivalent to nearly a month's production in China, the world's top producer and consumer of the metal.

"We are cautious about the prices," said a sales manager at a large aluminium smelter. "Stocks now are about the same as a year earlier."

The stock estimate is close to the level seen nearly a year ago, when the State Reserves Bureau (SRB) kicked off a scheme to buy aluminium from smelters to help their operations as the global financial crisis cut demand.

High stocks and low demand prompted the SRB to buy 590,000 tonnes of primary aluminium to help smelters' operations between last December and February. Smelters finished their deliveries to the SRB in March and April.

State-owned power grids also purchased around 400,000 tonnes of aluminium from Aluminium Corp of China Ltd (Chalco) (2600.HK) (601600.SS), the country's top producer of the metal, in the first few months of the year.

Those state-backed purchases sucked up most of stocks in the domestic market in March and April, driving up prices and spurring record imports in the first half.

But again stocks have risen since May, following record imports. Chinese smelters have also reopened millions of tonnes of capacity due to firm prices, boosting production to a record in October for the second straight month. [ID:nPEK304880]

In August, Chalco estimated 500,000-600,000 tonnes of aluminium were stored in private and Shanghai exchange warehouses. Those stocks were lower than an estimate of 700,000 tonnes made by analysts and smelter officials. [ID:nHKG49899]

WAREHOUSES GETTING FULL

Around 350,000 tonnes of aluminium ingots, the most popular trading form in international and Chinese markets, are thought to be sitting in warehouses in Guangdong province, of which about 150,000 tonnes are foreign metal and stored in 2 bonded warehouses in ports in Guangzhou city, traders estimated.

"Most (locally produced) aluminium stocks in Guangdong are in Nanhai," said a trader in Nanhai city, home to dozens of aluminium fabricators.

"Nanhai should have 200,000 tonnes of stocks. Warehouses are almost full."

More than 320,000 tonnes of aluminium are expected to be stored in warehouses in and near Shanghai with the highest estimate of 500,000 tonnes excluding bonded stocks.

It is unclear how much bonded aluminium stocks are stored in Shanghai.

Traders and smelter sources said privately held stocks were still rising, since output was set to increase in the coming two months and demand was weakening as construction projects in the north fell in winter and delivery of 2009 export orders ends.

"By the year-end, stocks may rise to 1.5 million tonnes," a manager at an aluminium fabricator in Nanhai predicted.

But the SRB is not expected to buy aluminium from the domestic market in the near future given demand has improved since the second quarter of the year, thanks to Beijing's stimulus packages, traders and smelter sources said. (Editing by Clarence Fernandez)