China aluminium, zinc stocks up on imports, restarts

China's stocks of primary aluminium and refined zinc are rising after huge imports and smelters' restarting of idled capacity in March and April, traders and smelter officials said, while demand remains weak.

High stocks have already driven down spot aluminium prices 1.6 percent this month in Shanghai, in a contrast to a 2 percent rise on the London Metal Exchange . Spot zinc prices have risen 4 percent this month, lagging behind the LME's 8 percent rise.

Weaker prices are expected to cut imports of the two metals in coming months from record inflows in March-April.

About 400,000 tonnes of primary aluminium were stored at public and private warehouses and the bulk had been built this month, they estimated. About 500,000 tonnes of refined zinc could also be sitting at warehouses. The stocks included those in the Shanghai Future Exchange's warehouses and are enough to meet China's demand for about half a month of aluminium and 1-� months of zinc.

"Fabricators have been using imported aluminium in the past two months," said a manager at a fabricating plant in Nanhai city in Guangdong province.

The manager and a trader in Nanhai said imported primary aluminium was being offered at a discount of 50-300 yuan per tonne to spot Chinese prices, compared with 100-200 yuan per tonne in early May, spurring end-users to cut purchases of locally produced aluminium ingots.

"More than 200,000 tonnes could be sitting at warehouses in China now," the manager said, referring to non-exchange stocks.

The trader in Nanhai said more than 100,000 tonnes of primary aluminium were stored at warehouses in the city, home to dozens of aluminium fabricators. The bulk was Chinese aluminium.

Chinese aluminium smelters are estimated to have restarted more than 1 million tonnes of idled and new capacity since March.

"Demand is getting worst," a sales manager at a large aluminium smelter in Henan province said. He added merchants were unwilling to take aluminium.

A sales manager at a trading firm in Shenzhen city said the firm had reduced monthly purchases of primary aluminium from smelters by a third this month as its reselling to fabricators had fallen.

"Our sales have fallen a lot from March and April".

Prices of aluminium and zinc in China, the world's top consumer and producer of the two metals, had been supported after the State Reserves Bureau bought 590,000 tonnes of aluminium and 159,000 tonnes of zinc from local smelters in December-February as part of Beijing's stimulus package in the midst of an economic slowdown. Power grids also bought 400,000 tonnes of aluminium.

Strong Chinese prices drove up imports of unwrought aluminium and aluminium products by nearly 200 percent on the month to 439,902 tonnes in April, surpassing March's multi-year high, customs data showed.

Based on the ratio of primary aluminium to total imports in March, the metal data, which will be released around May 22, could show primary aluminium inflows of 255,143 tonnes in April -- almost double that of March.

Imports of refined zinc may have surpassed 100,000 tonnes in April after a record 121,027 tonnes in March, an executive at Zhuzhou Smelter <600961.SS>, China's top producer, estimated.

He added that zinc smelters had also restarted idled capacity since late March and most smelters were running nearly full throttle now.

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