China’s announced plans to accelerate railway and other infrastructure projects have yet to translate into bigger demand for metals, according to Bloomberg Intelligence’s channel checks with producers and traders.
It appears that implementation of the projects may not have started, as metal producers are still waiting to receive orders.
Local governments, which usually match Beijing on infrastructure investments, may lack funds this year due to declining tax proceeds and land sales.
The declines in metal inventories at the Shanghai Futures Exchange don’t necessarily mean demand is improving, as some inventories are now being held at off-exchange warehouses.
These are considered “invisible stocks” as no official data on them is available. The rising use of “invisible stocks” reduces exchange inventories, even though total distribution amounts could actually be growing.
Bonded warehouses — or facilities where dutiable goods are stored — are one form of invisible stocks. For example, China’s copper bonded warehouses have about 600,000 tons of inventory, exceeding the aggregated stocks held at LME, SHFE and COMEX.
Metals can also be held in non-exchange deliverable formats. Molten aluminum, for instance, now accounts for more than 40 percent of the total sales volume of primary aluminum in the country. The use of molten metals is increasing.
By shipping metals in molten form instead of ingots, producers can save on casting costs while customers avoid re-melting costs.
The views expressed in this article are those of Yi Zhu, an analyst at Bloomberg Intelligence.
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