Metal Bulletin aluminium arbitrage calculator 

The differential between canceling aluminium from London Metal Exchange warehouses in Asia and shipping the material into the US Midwest has reached an all-time high, but the market is skeptical it can take profit from it.

The estimated arbitrage from Singapore, Busan, Johor and Port Klang to shipping to the US Midwest was at their widest since Metal Bulletin started tracking the indicator last June.

For material originating from warehouses in Singapore, the estimated arbitrage was at $150 per tonne in February for shipments of 10,000 tonnes (via break bulk shipments), a dramatic increase from $84.84 per tonne the month before.

In Busan, the estimated arbitrage rose to $158.86 per tonne for shipments of 10,000 tonnes from $94.15 previously.

In Johor and Port Klang, the estimated arbitrage jumped to $164.18 per tonne for shipments of 10,000 tonnes from $99.45.

The continued rise in US Midwest aluminium premiums is fueling the widening arbitrage. Metal Bulletin assessed the US Midwest delivered premium at 16.5-17.5 cents per lb on Tuesday March 6, its highest since April 2015. The monthly average for the US Midwest premium in tonnes in February was $297.62 per tonne, up significantly from $231.48 in January.

The arbitrage indicator, however, does not account for US President Donald Trump’s proposed blanket 10% tariff on aluminium imports.

The margins for shipping metal from Asia to the US could be wiped out if that duty is implemented while the metal is making its way to the country, market participants told Metal Bulletin.

“You have to have guts to ship to the US right now,” one aluminium trader said. “I don’t think anyone will ship right now. Even if the arb shows a nice profit, that profit is not going to be there if you ship now and they slap a duty on it.”

Sending metal at the moment is risky as well, with a tariff announcement expected in the coming days and weeks.

“There isn’t any reward to take advantage of the arbitrage at the moment because we do not know what is going to happen,” another trader said.

The widening arbitrage window could benefit those who have already sent and cleared metal into the US in previous months though.

“If you’ve been doing this for three months, the risk is your last vessel [shipping metal to the US],” the first trader said.

Stable freight
Freight and FOT rates have had a marginal effect compared to the US premiums on the arbitrage, but are expected to tick higher in the coming months.

“Overall it is safe to say the shipping market remains firm and actually started to climb in recent weeks. The expectation is that the market will remain firm up until end the end of May and early June,” The source said.

Local currencies have remained relatively stable against the dollar, which kept FOT in dollar terms stable.

The freight and FOT component – the total value of canceling material from the warehouse and shipping to Owensboro in the US Midwest – of trades increased to $147.63 per tonne from $146.64 per tonne in Singapore in January, rose to $138.76 per tonne from 137.33 per tonne in Busan, and rose to $133.44 per tonne from $132.03 per tonne in Johor and Port Klang.