FOCUS: Largest LME aluminium delivery in 4 years to swing spreads back into contango

Aluminium stocks on the London Metal Exchange have increased nearly 30% over the last three trading days, with market participants taking advantage of tightness in the February/March nearby spread.

166,225 tonnes were delivered onto the exchange today, the largest single delivery of aluminium into LME-listed warehouses since March 19, 2014.

“There is backwardation [in the February/March-2018 spread] and someone took advantage of it – when there is a backwardation people tend to deliver onto the exchange,” a trader said.

“The deliveries are linked to the February/March spread backwardation. If the spreads are tight then it does not make sense to keep hold of the metal,” a floor trader added.

Traders told Metal Bulletin that the deliveries are expected to help swing the nearby spreads back into contango.

The February/March-2018 LME spread has narrowed to a $2 per tonne contango from $5 per tonne on Friday February 9, while the benchmark cash/three-month spread has swung to a wider contango since the large delivery, now at $5.25c per tonne.

“The deliveries have an influence on the backwardation, which will disappear. It is already dwindling now,” a market source said.

“An increase in the aluminium deliveries in Asia is because of the backwardation, which has resulted in pressure to liquidate,” a second trader added.

LME aluminium stocks have increased a total 183,800 tonnes since Thursday February 8, with 41,650 tonnes delivered on Friday and 22,175 tonnes delivered on Monday before today’s large delivery.

79.8% of the stocks delivered in over these three trading days has been in Port Klang, with the rest of the metal split between Singapore and Johor – the majority of the metal is ingots.

More deliveries to come?

On-warrant aluminium stocks in LME warehouses were at a nine-year low toward the end of 2017 having plummeted significantly after warehouse reforms in 2013 and 2015.

Although, following today’s delivery some market participants expect even more metal to be delivered to the LME.

“This could be an artificial squeeze, the tightness in March shouldn’t be there. But there are always people who purchase during the fire sale in December and are holding and waiting to deliver in February/March... There is likely to be more to come,” a third trader said.

“If it’s not just because of the backwardation and there is more to it, then we will see further deliveries over the next few weeks. Another 100,000 tonnes would not be surprising,” a warehousing source said.

“The general view is that it is being dumped there while China is on holiday – it is all Port Klang material,” a source added.

Physical traders buoyed by deliveries
Traders and sellers on the physical market welcomed the large deliveries – viewing it as a bullish sign for premiums.

Global premiums are experiencing a bull run, but the persistent backwardation has been capping more exaggerated movements higher, with the benchmark Rotterdam duty-unpaid premium steady from the February 5 assessment at $100-107 per tonne, its highest level in a year.

“To me, this move is bullish for spreads and supportive of premiums, which is a good sign,” a trader in Europe said.

Justin Yang, Vivian Teo and Shivani Singh contributed to this article.

What to read next
Luxembourg-based recycler Befesa’s facility in Mooresboro, North Carolina, is the first in the world to manufacture special high-grade (SHG) zinc solely from recycled zinc
Lower aluminium premiums in Europe risk deterring imports amid falling freight rates, with some market participants now looking at the availability of material for 2023 in light of the various smelter cuts on the continent
Anglo American and Germany-based Aurubis have signed a memorandum of understanding (MoU) to jointly develop a solution that will ensure copper, a key commodity in energy transition, is traceable and sustainably produced, the London-based miner announced on Thursday, November 24
Recent disruptions to Peruvian mines have raised concerns about social tensions reducing the attractiveness of the industry to investors, but market participants told Fastmarkets that they still rate Peru highly as a copper mining hub
Codelco, the world’s biggest copper producer, will halve its refined copper sales to China in 2023, citing major production challenges at its Chuquicamata complex and closure of the Ventanas smelter, both in Chile
Baoshan Iron & Steel (Baosteel) will begin to supply steel made with sharply reduced carbon emissions to Beijing Benz Automotive (BBAC) from next year, the Chinese steel giant said on Tuesday November 22
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.