BEIJING (Reuters) - Shanghai Futures Exchange (ShFE) aluminum stocks have fallen for the first time in more than nine months, giving the market faint hopes of a drawdown on record inventories of the metal in China, the world’s biggest aluminum producer and consumer.
Deliverable stocks of aluminum registered with the ShFE fell by 154 tonnes on March 30 to a still sky-high 970,233 tonnes on Wednesday, according to exchange data released two days earlier than usual because of the upcoming Tombsweeping Day holiday in China.
Traders were quick to downplay the prospect of the overhang disappearing anytime soon, however, noting the decrease was very small.
“I would be surprised if there is a big drawdown on the inventory,” one aluminum trader said. “Having said that, April and May is the peak season, so if there is one time of the year when this surplus should be consumed, it is right now.
“If it doesn’t (start to fall), that could be a big problem for the smelters,” which are waiting for aluminum prices to recover before increasing production, the trader added.
The prolonged inventory build has weighed on Shanghai aluminum prices in recent months. The most traded ShFE aluminum contracted closed down 0.3 percent at 14,010 yuan ($2,223.07) a tonne earlier on Wednesday, after in January-March having its biggest quarterly decline since 2010.
The last time aluminum inventories in ShFE warehouses - in Shanghai, Guangdong, Jiangsu, Zhejiang, Shandong, Tianjin, Henan and Chongqing - fell was in the week ended June 23, 2017, when they slipped by less than 1,000 tonnes to 432,241 tonnes.
Since then, the level of stocks has more than doubled, rising for some 40 straight weeks beyond the previous high of 504,974 tonnes in March 2013 to within striking distance of 1 million tonnes. “It could still get there,” a second trader said.
ShFE aluminum touched 17,775 yuan a tonne in September, a near six-year high, incentivizing smelters to churn out and store more metal. The supply continued to flood in even during China’s winter heating season, when aluminum output in 28 northern Chinese cities was supposed to be cut by 30 percent.
Aluminium inventories <0#SMM-ALINV> published by data provider SMM, which are updated twice a week and considered a broader indicator of Chinese stocks than ShFE data, showed a 12,000 tonne drawdown from March 29 to 2.31 million tonnes on Wednesday.
A dip in SMM inventories, also from record-high levels, began last week.
Reporting by Tom Daly; Editing by David Holmes