Metal Bulletin will introduce in December a new arbitrage calculator tool for the shipment of aluminium from London Metal Exchange-bonded warehouses in Asia to the US Midwest.
The tool aims to provide a monthly indication of the differential between the all-in cost to deliver aluminium purchased via LME clearing from registered warehouses in Asia against the current US Midwest premium and LME cash cost of the metal.
To do this, Metal Bulletin will use a monthly average of its US Midwest P1020A assessment and the average LME cash cost for that particular month to derive the all-in Midwest P1020A price.
This will be compared with the all-in ‘cost and freight’ (cfr) price in Owensboro, Kentucky, which is at the core of the US aluminium industry and represents a key reference price for the physical industry delivering into the Midwest.
The all-in CFR Owensboro price will be calculated based on analysis of all the latest trends in the freight industry provided by an external consultant, the official LME outright cash aluminium price and its published free on truck (fot) rates.
The all-in CFR Owensboro number will take into account the purchase of warrants from LME clearing in Asian warehouses, the cancellation of the material and break-bulk delivery of 10,000-tonne clips into the port of New Orleans before being shipped via barge freight into Owensboro.
The CFR Owensboro price will then be compared with the all-in Midwest delivered price. It will not include the final delivery component from Owensboro to the customer or any storage charges due to the highly variable nature of these costs.
The ‘arbitrage’ will then be published each month in a table accompanied by a short commentary on any changes to costs or to activity.
The first report is set to be published on the Wednesday December 6. It will thereafter be published on a monthly basis on the first Wednesday of every calendar month.
Since the US is a natural deficit market, Metal Bulletin hopes to add value to its subscribers through the launch of this calculator, particularly to traders actively seeking to find ways to capture value from the Midwest’s need to import material.
At various times in 2017, Metal Bulletin has observed a growing trend among traders who purchase relatively cheaper units from the LME and deliver them into the US. This was particularly evident in February and March, when large amounts of material were cancelled from LME-listed warehouses around Asia, with some destined to move to the US Midwest, where premiums had risen to their highest since May 2015 at one stage in February at 10.13 cents per lb.
With US premiums rising again – they climbed for the sixth week in a row to 9.25-9.5 cents per lb this week – and market talk of units also arriving from Asian LME-registered warehouses, Metal Bulletin believes that readers will be given a better understanding of the profitability of this trade, particularly to those who currently have exposure only to select parts of this trade or regions where it is carried out.
For any comments about the new calculator or if you would like to find out more about how Metal Bulletin will produce the report, please email Metal Bulletin’s global product development manager, aluminium, Ian Walker.
Questions relating to Metal Bulletin’s pricing methodology and policy should be sent to Metal Bulletin’s global base metals editor, Perrine Faye.