MI aluminium stocks analysis: Fresh 07 high but cancellations improve

MI aluminium stocks analysis: Fresh 07 high but cancellations improve

The LME headline figure hit a fresh 2007 high yesterday thanks to accelerated inflow in South Korea and another tranche of deliveries at Baltimore, which received a big 13,675t in one hit last Wednesday.

Although Chinese exports of primary aluminium have slumped so far this year, there remains some flow to South Korea, which has long been a favoured destination. Cumulative exports to the country in Q1 were 28,650t against total exports of 56,500t. This may be a factor in yesterday's arrivals but more pertinent is the bigger picture alluded to by Alcan on its Q1 results conference call (see above). Surging Chinese exports of product to the Asian region are displacing consumption elsewhere, which may be acting as a dampening effect on the regional market.

The continued steady flow of metal onto LME warrant in the US seems to reflect still fragile demand conditions in the country—a function of weakness in the housing and automotive sectors. That said, there's a curious discrepancy between the LME and NYMEX systems. NYMEX warranted stocks have trended lower this year but more dramatic has been the drawdown in off-warrant stocks. These fell by another 4,906 pieces Tuesday to 65,793. They are now down by 68,905 since the start of January.

It was a much better day for fresh cancellations in the LME system with a total 4,900t moving into this category—the highest single-day level since the first days of March.

That's lifted the ratio of cancelled tonnage in the system to 2.4% and provided a mild fillip to the 'out' side part of the equation. However, we'll need to see a continuation of this activity before we can expect a sustained re-acceleration in a very lethargic draw rate.