We are hearing reports at AZ China that the so-called “Commercial stockpile” of aluminium doesn’t exist.
Readers may recall about 3-4 months ago, in the middle of the price slide to below RMB 10,000 per ton, news emerged that six leading aluminium companies had formed a Joint Venture that would manage a stockpile of 1 million tons. The stockpile would be underwritten by the China Development Bank with interest payments made by the Strategic Reserves Board.
But according to some that we have spoken to, the real purpose of this announcement was to stop the price slide. It is fair to say that strategy worked!
We are still working to confirm whether the story is true. Let’s face it, one million tons of metal is a big warehouse, though of course it’s quite possible that the metal was always planned to be stored at each producer’s metal pad. And it’s quite possible that between the six big companies they might well have a million tons in unsold inventory. But has that metal been set aside and earmarked for this commercial stockpile?
If there is no stockpile, then why are prices going up? We understand that part of the reason is that producers are leaning to “liquid metal delivery”. The normal pricing structure that most people quote refers to 25kg ingot, but if smelters are delivering metal in liquid form, or producing T-Bar (750kg sows) then they aren’t producing the 25kg item. Between the 3 form factors - liquid, T-Bar or ingot - ingot is the most expensive to make for a smelter. So it appears there may be an artificial shortage of the item that the Shanghai price reference is based on. We understand there’s no shortage of T-Bar.
Just how much of China’s metal is delivered in liquid form? We are presently working on that question, but it’s clearly different according to who and where you are. Shandong Hongqiao for instance delivers a substantial portion of its metal in crucibles, but if you are a smelter sitting in Xinjiang province 2000 miles from your market, it’s not possible to deliver any metal hot. We will be keeping our clients and subscribers in the loop on what we find.
One thing is for sure - if there is a stockpile of metal, it is not in liquid form.
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