Shanghai-bonded nickel stocks refresh lows; copper down on improved arbitrage window

In January 2018, Shanghai-bonded nickel stocks declined due to limited arrivals and new tax concerns implemented at the start of the year, while copper stocks were down on arbitrage purchases after the yuan strengthened and deliveries reached the exchange.

Nickel stocks in the Shanghai-bonded area hit another historic low after few shipments arrived during January and large quantities of refined nickel were transferred to the domestic market to avoid the new higher tax.

Metal Bulletin’s assessment of nickel stocks in Shanghai-bonded warehouses decreased to 19,000-24,000 tonnes at the end of January, down 30.6% from 28,000-34,000 tonnes on January 3 and 67.9% on an annual basis.

After Beijing announced it would charge a 2% import tax on melting refined nickel, many bonded nickel stocks entered the domestic market in China while traders’ tried to clear stocks through customs before the import tax doubled.

Nickel cathodes stocks in Shanghai Futures Exchange (SHFE) warehouses stood at 56,742 tonnes on January 26, 17,117 tonnes or 42.5% higher than the 39,625 tonnes recorded on December 15, the same day the tax raise announcement was made.

“More refined nickel entered China’s domestic market and has been weighing on China’s domestic refined nickel prices for the past four weeks, resulting in a bigger yuan discount based on the Wuxi most-traded February nickel contract,” a Shanghai-based major nickel trader said.

“The domestic refined nickel price is under pressure and increasing import costs makes the negative arbitrage between the [London Metal Exchange] LME and Wuxi much wider in January than compared with the end of 2017, deterring buying interest and inquiry interest on nickel bills of lading,” the trader added.

Market participants expect lower nickel full plate imports in January because the, “Chinese domestic market needs some time to consume the high domestic stocks,” a senior nickel analyst commented.

Metal Bulletin’s assessed the nickel low-high premium, 99.8% purity, Norilsk Nickel full plates at $240-270 per tonne cif China on Tuesday January 30 amid very thin trading, down from $280-300 per tonne on Tuesday December 12.

Copper stocks move as arbitrage improved
Several Shanghai-bonded copper stocks were moved over the last month due to the improved arbitrage window in late January.

Metal Bulletin last assessed Shanghai-bonded copper stocks at 450,000-460,000 tonnes on January 29, down 15,000 tonnes from 465,000 tonnes assessed on January 2.

The arbitrage window improved following copper deliveries to the exchange and the yuan’s appreciation from late January, which boosted buying activities for both restocking and arbitrage trading.

On Tuesday January 23, more than 36,000 tonnes of the red metal hit LME sheds, mainly Busan warehouses, while subsequent deliveries moved copper into Singapore, Rotterdam and New Orleans warehouses.

The LME’s three-month copper price saw a 2% day on day decline from $7,090 per tonne to $6,901 per tonne on Tuesday January 23, with a series of put options bought at bearish strike prices. It soon recovered, however, closing Thursday January 25 at $7,148 per tonne.

On Friday January 26, on-warrant stocks increased 62% from Monday January 22, to stand at 258,675 tonnes – their highest since October 2016.

The Chinese yuan’s recent appreciation against the dollar has also helped ease the losses on the Shanghai-London arbitrage. The middle rate of the yuan against the dollar rose to 6.3339 as of January 31, compared with 6.5342 at the end of December 2017.

“Some buyers hesitated to hold too many stocks before the Lunar New Year holiday, while the attractive arbitrage encouraged some to get materials in,” one Shanghai trader said.

While some buyers were in a rush to take advantage of the improving arbitrage, Metal Bulletin noticed that the buying interest for relatively old warrants also picked up in late January, resulting in the consumption of some old warrant stocks.

Zinc climbs further on soft demand
Metal Bulletin last assessed Shanghai-bonded zinc stocks at around 203,000-205,000 tonnes at the end of January, up 29.5% from 155,000-160,000 tonnes on January 3 and 92.5% compared to January 2017.

Stock levels have predominantly been in a downtrend since last June and reached the bottom of 55,000-60,000 tonnes last October, before it climbed up to a historical high of 155,000-160,000 tonnes on January 3, its highest since Metal Bulletin began assessments in April 2015.

Both domestic supply and demand were affected by environmental crackdowns over the winter season, resulting in a relatively stable market and slow demand for import materials.

On the supply side, raw material tightness limited metal production – miners in Xiangxi, west of Hunan province, have suspended all production since December due to stricter environmental measures while miners in the north, mainly Inner Mongolia, lowered operation rates amid especially cold weather in the area.

Transportation problems also arose, with limited availability before the Lunar New Year holiday, higher costs and lower quotas, several smelters said.

On the demand side, galvanized plate producers in northern China with high pollution risks, such as Tianjin, kept producing at low operational rates while zinc alloy producers in the south, such as Guangdong, finished stockpiling before the Lunar New Year holidays.

“Downstream producers have started the holiday step by step this week and will probably come back at the end of February, while transportation has also slowed down,” according to a Shenzhen trader.

Slow demand led to bigger discounts in local domestic zinc ingot trading, which brought more competition for imported ingots.

“We have reduced our zinc prices in January in order to lower our stock levels before the new year holiday,” a smelter resource said.

As a result, Shanghai in-warehouse zinc premiums fell $8 per tonne on a monthly basis to $138 per tonne on January 30, compared to $146 per tonne at the end of December.

China’s annual zinc contracts for 2018 have been settled at premiums of $155-165 per tonne on a cif Shanghai basis, up around $20 per tonne from 2017, according to Metal Bulletin’s assessment.

Aluminium stable
Shanghai-bonded aluminium stocks were estimated at 6,000-8,000 tonnes at the end of January, flat from the previous month, and their lowest since April 2015 when Metal Bulletin began assessments.

Domestic aluminium production increased month on month – China produced 2.71 million tonnes of aluminium in December 2017, 15% higher than the 2.35 million tonnes produced in November.

High stocks remain the major concern to market participants in the light metal market. Aluminium stocks on the SHFE increased 7,199 tonnes week on week to 790,958 tonnes, according to the weekly stock report on Friday January 26.

“The winter capacity cut came out lower than expected, so we still need to consume domestic stock before considering imports,” a Shanghai aluminium trader said.

Shanghai-bonded stocks January 2018


January 2018 (kt)

December 2017 (kt)

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January 2017 (kt)

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