SMM Analysis on Why LME Aluminium Inventories Soared by More than 30,000 mt against the Backdrop of Overseas Aluminium Output Cuts

SHANGHAI, Sep 7 (SMM) – According to the latest LME data, LME aluminium inventories increased by 31,325 mt on September 6, an increase of 11%, the largest increase since February. The growth was mainly contributed by warehouses in Klang. 

Port Klang, where LME’s approved warehouses in Klang are located, is an important port in Southeast Asia and Malaysia. It is located in an advantageous location in the Straits of Malacca. It has highly developed shipping routes, which can achieve fast freight exchanges with China. 

While the impact of power rationing in Sichuan has not yet completely subsided, the power shortage in Yunnan has sparked renewed concerns over aluminium production disruptions. Recent supply disruptions allowed SHFE aluminium to rise for three days in a row, which closed up 1.4% at 18,505 yuan/mt yesterday. 

In contrast, LME aluminium prices have lost 7.68% since the end of August as overseas energy crisis weighed on demand. 

As such, the domestic and overseas price gap kept narrowing, and the current import loss stands at 323.9 yuan/mt.  

Therefore, SMM believes that in the context of the continued rise in domestic aluminium prices, overseas aluminium ingot traders may be waiting for an "opportunity” to export to China. If smelters in Yunnan are subject to production cuts due to the power shortage, the domestic aluminium price will continue to rise, which will open the import window. In this context, overseas aluminium ingots may have the opportunity to enter the domestic market. 

As over 50,000 mt of Rusal aluminium was delivered last month, some market players believed that the recent surge in LME aluminium inventory might have been contributed by the delivery of Rusal aluminium. 

The inventory spike might also have been caused by a centralized release of hidden inventory.