Citi pumps aluminum into LME warehouse system, sources say

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Citibank deposited the bulk of aluminum that flowed into the London Metal Exchange’s warehouse network earlier in October, two sources with knowledge of the matter said, showing that large amounts of the metal are being held outside the exchange.

Much of the aluminum held separately outside the LME’s warehouse network is tied up as collateral in financing deals, which involve borrowing money to buy aluminum now in order to sell forward for a higher price.

Some of the deals are expiring and renewal is not attractive due to the impact of higher interest rates. The finance deal backdrop is one reason why LME aluminum stocks have more than doubled to 587,100 tonnes since hitting 32-year lows in August.

Buyers looking to take delivery of aluminum on the LME for October had to pay for some time a premium for the metal – used widely in the transport, construction and packaging industries – due to concern over low LME stocks.

The premium, or backwardation, was one reason Citibank deposited large amounts of aluminum into LME approved warehouses in Port Klang, Malaysia, the sources said, adding that it was substantial. Two sources said Citibank’s metal accounted for the majority of deposits into Port Klang.

Citibank declined to comment.

LME aluminum stocks in Port Klang, at 381,425 tonnes on Oct 19, were more than double the level seen on Oct. 10, while those in Singapore jumped 24% to 118,550 tonnes over the same period.

In Gwangyang, South Korea, LME aluminum stocks also jumped, though not to the same extent, due to Glencore delivering significant amounts of Russian-origin metal.

“All these (aluminum) units coming back onto the LME, shows there is plenty of material around,” an aluminum trader said.

The premium paid for October over the November LME contracts was above $10 a tonne for some days before the October contract matured on Oct. 19.

Most of the recent aluminum flowing into LME warehouses is not newly made, and produced in India or the Middle East, consultancy Harbor Aluminum wrote in a note, adding that it expected a surplus of one million tonnes next year.

Macquarie analysts expect to see an aluminum market shortfall of 600,000 tonnes for 2022 compared with a forecast of a deficit of 1.8 million tonnes made earlier this year. They expect consumption to grow 0.9% to 69.3 million tonnes after a surge of 8.3% in 2021.

Analysts overall have pared back their expectations of large deficits due to slowing growth and demand in top consumer China and elsewhere.

Weak demand is reflected in the physical market premiums paid above the LME benchmark price. They have been falling since a jump earlier this year after Russia’s invasion of Ukraine fuelled worries about disruptions to supplies of Russian aluminum.

Duty-paid physical premiums in the United States and Europe at $458 a tonne and $320 a tonne, respectively, have crashed more than 80% since hitting record highs in April and May, respectively.

Benchmark aluminum at around $2,310 a tonne has dropped 43% since hitting a record $4,073.5 a tonne in March.

(By Pratima Desai; Editing by Paul Simao)

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