MI ANALYSIS: Global aluminium exchange stocks up in July

Stocks of primary aluminium held by the world’s big three exchanges—London Metal Exchange (LME), NYMEX and the Shanghai Futures Exchange (SHFE)—rose by 32,461t to 897,438t over the course of July. That followed three month of declines—April, May and June—and total exchange stocks are now showing a year-to-date net increase of 158,954t. Asian Build The two drivers of higher stocks in July were the SHFE and LME warehouses in the Asian region. Neither is surprising given the fact that China remained the driver of higher global metal production in the period. The country’s metal production grew by 33.4% in the Jan-Jun 2007 period and although its net exports of primary metal have slumped since the imposition at the beginning of this year of a 15% duty on exports, those of “product” have ballooned as players have capitalised on the export tax differential with primary. Stocks in China registered with the SHFE rose by 17,087t last month to 41,042t. They are showing a year-to-date net increase of 22,460t but are a long way off the post-Lunar New Year holiday high of close to 100,000t. That will encourage China-watchers that consumption has also been running at an extremely high growth level, limiting the local build in exchange inventory. However, high “product” exports are displacing metal in the Asian region and that is being reflected in the flow of metal into LME warehouses in South Korea, Singapore and Malaysia. Regional LME stocks rose by 29,825t to 542,950t over the course of July, largely due to very steady inflow at Singapore in particular. The year-to-date increase in LME stocks in Asia at the end of July stood at 39,975t, or 8.0%. It’s also worth noting that the ratio of cancelled tonnage at 1.9% is below that for the LME system as a whole of 2.8%. European Squeeze Another pattern that was extended in July was the steady squeeze on LME tonnage in the European region. Registered tonnage in the UK disappeared in June and that in Italy looks set to go the same way. All the tonnage in the country is located at Trieste and since the mass cancellation of all 17,725t in late May, it has been moving steadily off the board. It fell another 6,825t over July to 3,100t. LME tonnage in Sweden was reduced to 7,200t in late June and was untouched until the last couple of days of July when 250t were cancelled, suggesting further erosion here. Other European locations—The Netherlands, Belgium, Germany and Spain—saw registered tonnage fall by 1,750t last month. It’s also worth noting that producer inventories in the region are still hovering at ultra-low levels, which suggests availability is being squeezed on the back of the region’s robust underlying demand. The same cannot be said of the US right now, where demand is still struggling in the face of the twin areas of weakness—residential housing and automotive. However, LME stocks in the US have broadly stabilised over the last couple of months. After rising strongly in the Jan-May period, the net movement over June and July has been a fall of 1,550t. Warranted stocks on the NYMEX are also being whittled away. They fell by a marginal 201t last month but at 17,106t are very low, allowing little leeway for further substantive draws.