Column: LME shadow stocks rose in April, but downtrend only paused

Traders work on the trading floor of the London Metal Exchange in London, Britain September 27, 2018. REUTERS/Simon Dawson

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LONDON, June 13 (Reuters) – The relentless bearish trend in London Metal Exchange (LME) shares came to a halt in April thanks to a parallel stock build.

The amount of metal stored off-market but with the contractual option of full delivery to the LME increased by 52,300 tonnes in April, according to the exchange’s latest monthly report.

This was just enough to offset the drop in recorded stocks, meaning that total inventory – both recorded and notional – increased by 12,100 tonnes in April.

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It was the first month-on-month increase since February 2021, albeit minimal, which still left total stock down 479,000 tonnes in the first four months of the year. 2022.

Stocks recorded on the LME continued to decline in May and the first days of June, suggesting that the April rally was just a blip in the overall trend.

It also didn’t bring much relief to physical buyers in Europe or the US, with Asian sites still accounting for the vast majority of LME stock, both visible and fictitious.

LME shadow inventory rebounds in April, offsetting declines in recorded stocks

ALUMINUM RECONSTRUCTION

The rise in LME shadow stocks in April was mainly due to a buildup of 58,685 tonnes of out-of-mandate aluminum stocks.

Aluminum made up 85% of the 300,050 tonnes that lay in the LME’s storage shadows at the end of the month. Copper stocks totaling 33,891 tonnes accounted for most of the balance, with shadow stocks of other LME base metals now at minimal levels.

These dummy stocks are ready to be delivered on LME warrant with the flick of a key and aluminum stock models in the past have featured regular rotations between registered and dummy storage.

The pattern has collapsed over the past year, with stocks in both categories falling in tandem and it’s worth noting that April’s metal flow into parallel storage has so far not progressed into storage. checked in.

Only 900 tons of aluminum have been justified since the end of April, a negligible volume compared to the amount of metal flowing in the opposite direction. Recorded main inventory has fallen an additional 150,000 tonnes since April.

May brought nearly 200,000 tonnes of new cancellations for physical loading, with the remaining live tonnage reduced to a multi-year low of 186,475 tonnes.

Although the aluminum curve, which is currently trading in the nearby contango, offers potential for equity funding, any alternative metal may currently command a physical premium of $600 per tonne over LME cash in the market. European and $750 in the American Midwest.

Until the physical market eases, LME stocks are unlikely to recover significantly, as the metal is more valuable as a physical unit than as a financial unit.

Monthly change in LME aluminum inventories – registered and non-mandate

ASIA DOMINATES

Virtual stockpiling of aluminum took place almost exclusively at LME sites in Asia.

European virtual stocks totaled just 19,740 tonnes at the end of April and US stocks extended their 18-month decline to 22,339 tonnes.

Asian locations, primarily Singapore and Port Klang in Malaysia, ended the month with 83% of all phantom aluminum inventory and an even higher 93% of recorded inventory.

The migration of aluminum stocks from the LME to Asia is a long-standing trend that was accentuated by China’s shift to importing large quantities of the metal in early 2020.

However, the pendulum is now moving the other way.

European aluminum smelters are collapsing under the weight of high electricity prices and the resulting record physical bounties are starting to suck in metal from Asia.

Even from China, which has started exporting raw metal to Europe despite a 15% tariff on overseas shipments. Read more

LME aluminum stocks by region at the end of April

IMPAUVED EUROPE

Virtual stocks of zinc in Europe disappeared in September last year and not a ton has appeared since.

U.S. shadow stocks also fell to zero in April, leaving just 3,224 tonnes of zinc in Asia, most of it in Singapore.

European zinc smelters have also reduced production due to energy shortages and physical premiums are, like those for aluminium, near record highs.

Reserve metal, if any, has been sucked out of the LME’s funding orbit into the physical market. Even though the metal was simply moved to full private storage, it moved closer to the physical supply chain.

Virtual stocks of tin in Europe have also evaporated and there have been only 19 tonnes of out-of-mandate lead in the region since the start of the year.

Recorded stocks of both metals have stopped falling but remain very low by historical standards and again much of what is available is in Asia.

The physical trade-off between the Asian surplus and the Western deficit remains constrained by port bottlenecks and high container freight rates.

Until that changes, Europe and the US look set to live with very low inventory coverage across the metal board.

The opinions expressed here are those of the author, columnist for Reuters

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Editing by David Evans

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

Garland K. Long