Shanghai Metal Stocks Raise Doubts About The Bullish Narrative For Base Metals

The London Metal Exchange (LME) base metals index increased by 10% in January because of investor bets on a robust revival of the Chinese economy. However, the positive narrative has been derailed by the rise in metal stockpiles on the Shanghai Futures Exchange (ShFE) over the New Year vacation period. Particularly, the increase in ShFE-registered copper and aluminium inventory is thought to be the sharpest seasonal build since China entered a hard lockdown in 2020. Concerns are also raised by the decline of the Yangshan copper premium, a widely monitored indication of import demand. This is especially important when you consider that other metals’ New Year holiday rebuilds were far more limited.

Stock Data

These Shanghai stock increases do, however, come with some significant limitations. Stocks of copper and aluminium are now recovering from their previous record-low levels. Other metals have also experienced far more moderate New Year holiday rebuilds. Lead and zinc inventories in ShFE have barely increased.

Wait And Watch

The indications coming from Shanghai are not consistent, which can be because each market has a different dynamic. It is therefore challenging to predict whether China’s seasonal stock patterns would materialize fully. When the downstream sector starts refilling four to five weeks following the New Year’s holiday, inventory often reaches its high. While Julius Baer is in the negative camp and does not share expectations of a stronger metals demand, Goldman Sachs remains a copper bull. The strength of the post-holiday demand is still up for debate, so the metal markets must wait to see when and at what levels Shanghai inventories peak.

Read More – China’s Copper Semis Imports And Exports Show Significant Changes