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(Repeats with no changes to text. The opinions expressed here are those of the author, a columnist for Reuters.)
By Andy Home
LONDON, June 12 (Reuters) - Aluminium is still the star of the London Metal Exchange (LME) base metals complex, up by over 12 percent on the start of the year.
After recording a two-year high of $1,981 per tonne in March, LME three-month metal has eased slightly but is largely holding its ground around the $1,900 level.
Compare and contrast with the likes of copper and zinc, both of which have wilted on growing concerns about renewed slowdown in China's construction and manufacturing sectors.
Aluminium is taking a different cue from China, pinning its hopes on what Beijing calls "supply-side reform" to force production cuts in the world's largest producer.
The money men are largely keeping the faith with this narrative, holding a net long position LME-AH-MNET of 167,725 contracts as of June 1. That's down from a peak of more than 200,000 contracts at the end of March, but still high by historical standards, which means since the LME introduced its positioning reports in July 2014.
But should fund managers be worried by indications of softness in the physical market?
Graphic on Japanese quarterly premiums:
Japanese buyers are in the process of concluding deals for shipments in the third quarter at a premium of $119 per tonne over LME cash prices.
That's down from $128 per tonne for second-quarter shipments and marks the end of a broader bounce in premiums over the first half of this year.
The drop in Japanese premiums is surprising given a double dose of production disruption in Australia, a key supplier to the Asian market.
Output in the "Oceania" region, which denotes Australia plus the Tomago smelter in New Zealand, slumped by more than 12 percent in the first four months of this year, according to the International Aluminium Institute.
That reflects one outage and one capacity curtailment.
The Portland smelter in the state of Victoria was badly impacted by a power outage in December last year. It lost around two-thirds of its 300,000-tonne per year operating capacity and has only just managed to restore around half of that. Full production is only likely in August, according to majority owner and operator Alcoa.
Rio Tinto's majority-owned Boyne smelter in the state of Queensland has trimmed production by around 15 percent or 80,000 tonnes this year after failing to get a sufficiently competitive power supply contract.
The scare in the last few days about shipments from the Qatalum smelter in Qatar, another supplier to the Asian region, probably came too late to impact the Q3 premium negotiations.
But it may not have mattered much anyway.
Every indication is that the Asian region is well-supplied, if not oversupplied.
In part this is down to the steady flow of metal out of the LME warehouse system.
LME headline aluminium inventory fell by almost 700,000 tonnes last year and it is already down by more than that this year.
Although the unwind of structural load-out queues at the Dutch port of Vlissingen is a key driver of falling stocks, a lot of the recent aluminium activity has taken place at good-delivery locations in Asia. There have been "flash" queues at Busan in South Korea and Port Klang in Malaysia in recent months.
And only a part of what has been withdrawn from the LME has gone anywhere near a downstream aluminium processor.
Significant tonnages have been moved to the United States to capitalise on what were higher premiums in that market place.
That trade appears to have lost momentum as the Midwest premium has slipped from its first-quarter highs above 10 cents-per-lb ($220 per tonne) to a current 8.5 cents, basis the CME's premium contract.
Which leaves a lot of ex-LME metal sitting in off-market sheds in the Asian region and being drip-fed into the physical market as stocks financing deals expire.
If this were the only pressure point on regional premiums, aluminium bulls wouldn't have much to worry about.
The dynamics behind the LME stocks declines are well understood and this is ultimately no more than a geographical distribution of what everyone knew was already there.
A more worrying development is what appears to be a new surge in Chinese exports of semi-manufactured products ("semis").
The preliminary snapshot of May's trade figures showed aggregate exports of unwrought aluminium and semis rising to 460,000 tonnes from 430,000 tonnes in April.
April's exports of semis products at 380,000 tonnes were the largest monthly tally since November 2015 and the implication is that, barring an unlikely burst in exports of either metal or alloy, they rose further in May.
It's not an entirely surprising outcome given lots of evidence China's giant aluminium machine is cranking back up again.
The official figures supplied by the China Nonferrous Metals Industry Association show national production rising by 12.5 percent in the first four months of this year. There are plenty of analysts who think even that growth rate looks too slow.
As ever when China generates more aluminium than it can use itself, exports of semis act as a pressure valve.
The impact this time around, however, might be accentuated by the fact that China's outbound flows have shifted shape from Trade Code 7604 (bars, rods and profiles) to Code 7606 (plate, sheet and strip).
Exports of 7604 have in the past been inflated by a significant flow of what the market has dubbed "fake" semis to Vietnam. This material has been on a world tour but is now back in Vietnam, still not in danger of going anywhere near the global supply chain.
The fear is that this latest surge in Chinese exports, by contrast, is bona fide product that will have an immediate displacement effect on regional physical market dynamics.
There is a tension building between the bull narrative of future Chinese production cuts and the current acceleration in exports.
Make no mistake. The prospect of significant aluminium production capacity being closed by Chinese policy-makers is an unprecedented supply side shock for aluminium, even if the scale of the threat is still very hard to determine.
But the drop in Japanese premiums suggests that physical availability is growing, not diminishing. And it will continue doing so as long as China pumps out more semis into the world market.
Bulls aren't panicking yet. That much is evident from the LME price. But they may want to keep a close eye on China's export flows over the coming few months.
Editing by Edmund Blair