New warehouse rules will hit aluminium supply

The London Metal Exchange’s recently proposed changes to the rules regarding its warehousing system have been described as “game-changing” by sources in the physical aluminium market, who expect a major impact on supply levels.

At the start of this month the exchange said it was proposing to require warehouses where large load-out queues have developed to send more material out than they draw in, in a move that would gradually reduce the queues. The aluminium market is at the centre of the warehousing saga, with on-warrant warehouse stocks breaching 5 million tonnes in January 2012, precipitating a rapid rise in delivery premiums to around 15% of LME aluminium prices from traditional levels of around 2-3%. Metal Bulletin’s European duty-paid aluminium premium peaked at a record $290-305 per tonne in January.  With LME aluminium prices falling below the marginal cost of production at about $2,200 per tonne in early 2012, and falling to lows below $1,800 per tonne this year, the high premiums have been the difference between profit and loss for many producers, and between continuing operations and closing them down for others. Some...

Published

Jethro Wookey

July 23, 2013

16:01 GMT

London