The trigger was the cancellation of more than 640,000 tonnes of aluminium from LME-approved warehouses in February and March this year, prompted by a combination of geographical arbitrage moves, rising regional physical prices and, most crucially, operators offering incentives to destock from competitors.
Warehouse operators have two main sources of income: free on truck (FOT) charges and, most importantly, daily rental storage income. Warehouses have historically offered financial incentives to producers and traders to bring in metal; the more income expected from rental fees and FOTs, the higher the incentive.
But some warehouses operators are actively looking to take metal from competitors, often from the same port at which the metal is stored.
Some operators have reportedly lost tens of thousands of tonnes of metal, some of which was incentivised into the sheds last year, to off-warrant storage managed by competitors, causing queues to form at some locations.
Access World and PGS in particular,...