US-based Novelis, a wholly owned subsidiary of India’s Hindalco Industries, will seek alternative ways of resolving its long-running concerns over queues to remove metal from some LME-registered warehouse instead of looking to the exchange for further action.
Novelis has for some time expressed concerns about the impact that queues have on premiums for metal, which are around all-time highs, and now form a significant extra cost that some cannot pass onto customers – in the US they equate to 11 percent on top of cash prices.
“The LME’s stated position is a challenge for the consumer end of the value chain which bears $3 billion in anomalous premium charges which flows through to the primary producers,” Nick Madden, senior vice-president and chief supply office at Novelis, said on the firm’s website.
The LME has said that the price/premium structure is flawed – prices are low but premiums are high. But it says this is not a faultline in the way the LME operates – it is for the aluminium industry to resolve.
“Clearly the approach taken to date of engaging the LME in debate has failed. The only path forward will have to be through other stakeholders,” Madden added.
The exchange looked at its rules and changed its loadout regulations in 2011 and 2012. It is also implementing further changes in April this year. But it has maintained for the past two years that the current warehousing situation squeeze – high stocks levels in some metals and long queues to take delivery – is driven by macroeconomics.
Central banks have been flooding the market with money at near-zero interest rates, which means that the heavy oversupply of metal can be financed and stored with ease. Warehouse firms, many owned by major banks and traders, are consequently able to pay high premiums to obtain metal, which then stacks up in stores, creating long queues, and increasing overall rent income.
Novelis is one of the leading manufacturers of rolled aluminium products and the world’s largest recycler of the metal. It supplies downstream aluminium products to major automotive producers such as Ford, Mercedes-Benz and Audi, packagers such as Rexam and beverage drink maker Coca Cola.
EVER-LENGTHENING QUEUES AND LME MEASURES
In the US, the waiting time to remove aluminium is some 16 months, with a queue of 12 months for the other metals. Warehouser Metro, owned by Goldman Sachs, has 29 of the 37 registered sheds there.
There are currently 1.427 million tonnes of aluminium stored there, with 999,475 tonnes under cancelled warrant – booked for removal but now in a bottleneck.
Meanwhile, in Europe, there is a 13-month queue to remove aluminium from Vlissingen in the Netherlands, although waiting times for other metals are shorter – up to two-and-a-half-months.
Pacorini, a wholly owned subsidiary of Glencore, has 42 out of the 44 sheds there that can store LME-registered metal. In total, 1.497 million tonnes is stored there, with some 909,000 tonnes under cancelled warrant.
After an independent review in April 2012, the LME’s minimum loadout rates doubled and climbed to 3,000 tonnes per day for any warehouses companies holding more than 900,000 tonnes of metal in one location.
As well, late in 2012, the exchange stipulated that registered warehouses belonging to a company in one location with cancelled warrants of at least 30,000 tonnes of a dominant metal will be required to deliver out an additional 500 tonnes per day from that location of non-dominant metals where such deliveries are requested.
This is on top of the requirement to deliver out a minimum of 60 tonnes per day of nickel and tin, which is set to take effect on April 1.
(Editing by Mark Shaw)