Aluminum's Premium Gains Being Fueled by LME Warehouse Rules, Harbor Says
London Metal Exchange rules are creating delivery bottlenecks for aluminum that are boosting prices and causing seven-month delays at Detroit warehouses, commodity researcher Harbor Intelligence said.
Warehouses monitored by the LME, the world’s largest metals exchange, are obliged to deliver a minimum of 800 metric tons to 1,500 tons daily, even as global stockpiles of aluminum rose almost fivefold to 4.57 million tons since the end of 2007. Detroit’s warehouses hold 25 percent of LME-monitored inventory. The premium paid in the Midwest to get the metal on top of its cash price surged to a 16-year high last month.
The LME’s minimum-delivery rule “is one of the factors that, without a doubt, is behind record high Midwest premiums,” Jorge Vazquez, a senior vice president at Harbor Intelligence, said yesterday in an interview in Chicago . The higher premium “implies consumers paying a higher price for aluminum.”
Aluminum for delivery in three months has climbed 30 percent in the past year, and in May rose to the highest level since August 2008. The metal advanced $9, or 0.4 percent, to $2,550 a ton today on the London Metal Exchange.
Bottlenecks in the U.S. warehousing system combined with the use of aluminum for financing deals may have cut the amount that’s available even as total LME stockpiles remain near a record. Detroit, a city associated with the auto industry , is the only site holding more than 900,000 tons of the metal, according to exchange figures.
Cash Rates“Notionally, metal is not in short supply, but a lot of it’s not available for immediate consumption because of the way the warehouses are taking advantage of the LME rules, especially Detroit,” David Wilson , a director of metals research at Societe Generale SA, said in an interview in Chicago today. “That’s keeping premiums high.”
The premium that buyers pay over cash rates to get supplies surged 37 percent this year and touched 9.5 cents a pound on May 6, the highest since February 1995. The premium averaged 5.7 cents in the past three years.
Global aluminum stockpiles monitored by the LME surged to a record 4.71 million tons on May 18.
Starting April 1, minimum daily delivery sizes will increase to 2,000 tons for sites holding between 300,000 tons and 600,000 tons, and 2,500 tons for sites with 600,000 tons to 900,000 tons, the LME said last week in a notice to members. The board “will give further consideration” to the proposal to raise minimum delivery rates for stockpiles above 900,000 tons.
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He also cited “booming demand” in the Americas. High diesel prices, a shortage of trucks and the tightness in the aluminum market also are contributing to the premium gains, Vazquez said. “People are mostly buying hand-to-mouth,” he said.
Gerald Mongan sifts through a plastic bag to remove a copious amount of aluminum cans at the green box container site in Columbia Falls. - Lido Vizzutti/ By , 06-22-11 COLUMBIA FALLS – It's about 2 pm on a Wednesday, and with the trash
Several months of inventory building left service centers with 3.5 months of aluminum stocks on hand by the end of last year, prompting a correction. By late March, they had whittled them back down to 2.5 months of supply, according to Metals Service
Industrial drums can easily weigh 500 pounds or more; it is impractical and dangerous for workers to handle these drums without the proper equipment, yet many warehouses continue to roll drums on their lips or overload simple aluminum hand trucks.
“Most car bodies are as thick as coke cans,” Ward says, pointing out his 5/32-inch hand-crafted aluminum bodies. They're built by a pontoon boat maker more accustomed to the needs of heavyweight party boats and are incredibly strong, rust proof and
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