As the aluminium market has been waiting for the publication of the US Department of Commerces recommendations from the Section 232 probe, the focus of attention has remained on rising visible inventories, particularly in China. SHFE stock reports have become a weekly reminder that Chinese production cuts have fallen short of expectations and that there remains far greater availability than aluminium bulls had expected.
Chinese production grew no less than 11% last year. Indeed, we have recently revised our supply-demand balance, replacing last years expected deficit with a surplus. Not surprisingly, overall sentiment has been gradually deteriorating as it adjusts to the disappointing reality. This is clear from falling fund length and prices so far this year. We wait to see now whether the Section 232 news restores a bullish tone. We fear it will not. Chinese winter production cuts expire in March, raising the prospect of even higher SHFE stock levels and greater pressure on prices.
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