China's aluminum prices softened this week as market sentiment weakened on the back of rising domestic warehouse stocks, multiple industry sources said Wednesday.
Aluminum prices in the Changjiang spot market stood at Yuan 13,780-13,820/mt ($2,002-2,008) Wednesday, down from Yuan 14,090-14,130/mt last week, but up from Yuan 13,520-13,560/mt a month ago. The front-month aluminum contract on the Shanghai Futures Exchange closed at Yuan 13,860/mt, down from Yuan 14,250/mt the week before, but up from Yuan 13,620/mt last month.
Domestic primary aluminum warehouse stocks were estimated at 1.2 million-1.3 million mt on Wednesday, more than double the 400,000-500,000 mt seen in January, and the 300,000-320,000 mt reported at end-2016.
The spike in stock levels was mainly attributed to an ease in transportation after the Lunar New Year holidays, and a slowdown in demand from downstream consumers during the new year period, sources said.
Deliveries of metal were delayed earlier as transportation requirements increased for passengers travelling during the holidays, and the stocking up for coal during the winter season.
"All the stocks sitting at railway stations in Xinjiang and other smelters are now being delivered into warehouses since transport eased, so stock levels are increasing," a Shanghai-based trader said.
"A lot of downstream consumers, the semis plants, also reduced output or shut earlier for the new year holidays and for environmental inspections, so demand slowed, adding to the rise in metal stocks," another Shanghai-based trader said.
Primary aluminum prices had firmed recently on the back of talks of potential smelter cuts and a spike in copper prices due to declarations of force majeure at Chile's Escondida mine and Indonesia's Freeport mine, sources said.
"But there's still a lot of volatility and if domestic stocks continue to rise, there's a lot of pressure on aluminum prices to fall further. But there's also a lot of uncertainty about policy changes and cutbacks, so we must wait and see," a third Shanghai-based trader said.
Meanwhile, China's import of primary aluminum remained at a standstill in February on the lack of any arbitrage opportunity, as the spread between import and Chinese prices continued at more than Yuan 2,000/mt.
The Platts all-in price for aluminum P1020 imports to China stood at Yuan 16,087/mt on Wednesday, which was higher by Yuan 2,227/mt when compared with the current Shanghai Futures Exchange price, and by Yuan 2,267-2,307 when compared with the Changjiang spot price.
