MI aluminium stocks analysis: Shanghai stocks lower

Stocks of aluminium registered with the Shanghai Futures Exchange (SHFE) fell for the third week running, this time to the tune of 7,606t.

That brings the cumulative decline over the three-week period to 16,438t but the headline figure is still showing a (Western) year-to-date gain of 64,357t thanks to a very fast build around the Lunar New Year holidays.

Tt can be argued that SHFE stocks developments in the recent period are consistent with normal patterns around the holidays—a build before and just after as consumers shut up shop for a couple of weeks, followed by draws as they return to operation.

But we're a little wary of just how representative are the SHFE stocks of the market in China right now given anecdotal reports of significant build in non-SHFE and therefore non-reported stocks of aluminium in the country. Certainly, the combination of soaring production growth and ultra-low exports has led to some collective head-scratching among analysts. We all know Chinese demand is good, but is it that good?

The LME headline stocks figure is a bit directionless right now, recording a week-to-date net decline of just 825t.

Activity remains low both on the "in" and "out" side and although the cancellation rate improved a little yesterday, the overall ratio of cancelled tonnage remains at a low 2.8%, suggesting little prospect of a sustained re-acceleration in draw rates.