There’s never a dull moment in the metals markets these days.
The latest developments come via Metal Bulletin which reports that backlogs at some LME aluminium warehouses are now so large that warrant holders are considering taking legal action just to take delivery of their own stocks.
Metal Bulletin adds that without the prospect of legal action the material could, in some cases, be stuck in warehouse queues for up to 10 months. This is especially true in the US, which is experiencing some of the longest lines.
From the story:
“A major physical trader in Europe is looking at the conclusion of the LME warehousing meeting. They’re convinced they’ll win in a legal fight,” an LME trader told MB. “They’ll say: ‘I have bought material, I have a title to that material, I can’t get access to it and warehouses are continuing to take material despite the fact there is a queue [to take it out],’” the trader said. “People are watching it extremely closely and we believe the situation will be challenged legally either in Europe or the US,” he said.
Aluminium stocks at LME-listed warehouses, meanwhile, have risen to all-time record highs of some 4,710,550 tonnes.
The situation is apparently so bad that some warehouses are paying producers incentives of up to $150 per tonne to deliver metal straight into their sheds. But traders and consumers are furious that metal is still being delivered in, when there is a queue to take it out, says Metal Bulletin.
All of which has led to a bizarre shortage of aluminium in the spot market and a rise in spot premiums to record highs — a characteristic known as backwardation. This, of course, would not ordinarily be the case when inventory levels are high.
Meanwhile, Metal Bulletin points out that warehouses are making money regardless:
Warehouses earn around 35 cents a day for every tonne of metal in the outbound queue. Metro, owned by Goldman Sachs, owns 19 of the 24 LME-listed warehouses in Detroit area; the rest are the sheds of Pacorini, which is owned by Glencore, and Delivery Network International. The LME has been urged to adjust the requirements according to the volume of metal held in each location, sources said in October. One suggestion was that the minimum load out could be changed to 1,500 tpd for every 100,000 tonnes of metal held.
As to why the backlogs have got so bad, some suggest warehouses have been logjammed by banks and funds either utilising inventories for long-term financing deals or for contango trades based around the notion of an oversupplied market.
Related links:
Welcome to ‘synthetic warehousing’ – FT Alphaville
China’s bonded-warehouse copper mystery – FT Alphaville
China’s copper as collateral addiction - FT Alphaville
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