The metal backlog at warehouses in New Orleans moved closer to that in Detroit and the Dutch port of Vlissingen as recent bookings to withdraw aluminum and zinc lengthened the wait by 27 weeks in three days.
Orders to withdraw zinc from New Orleans warehouses monitored by the London Metal Exchange quadrupled over the past three days, rising 245,975 metric tons to 324,975 tons, bourse data showed today. Total bookings are at the highest in at least 15 years. Aluminum canceled warrants at the location, as the orders are known, climbed to 152,500 tons yesterday and today from 25,000 tons two weeks ago. The U.S. port holds 70 percent of total LME zinc stockpiles. About 47 percent of zinc there is earmarked for delivery.
LME rules require warehouses storing more than 900,000 tons of metal to deliver at least 3,000 tons a day. With canceled warrants for all metals in New Orleans totaling 495,975 tons, it may take as long as 33 weeks to meet orders for it all. Zinc and aluminum cancellations of 398,475 tons in the past three days in New Orleans extended the wait times by about 27 weeks.
In order to take all of the metal at the daily rate the wait times would be about 33 weeks in New Orleans. This compares with about a 51-week wait in Vlissingen and about 43 weeks in Detroit, the two biggest repositories of aluminum.
“Available stockpiles within the LME warehouses are not easily accessible,” Nic Brown, head of commodities research at Natixis SA in London, said by phone. “I presume this is going to be a phenomenon that will be exacerbated when demand for metal picks up.”
Global zinc stockpiles tracked by the LME climbed 6.5 percent to 980,050 tons today, the most since Dec. 14, 2010. Warehouses monitored by the London bourse in New Orleans contain 689,650 tons of the metal. They have 900,695 tons of zinc, aluminum, aluminum alloy, copper, lead and steel.
The LME revised its delivery rules in April, doubling so-called load-out rates to 3,000 tons a day for warehouse companies storing more than 900,000 tons at a single location. The exchange has reconvened a steering committee before a six-month review of the daily rates expected in October.
“The subsequent queue the warrant cancellations have created mean that any fresh zinc units entering New Orleans will effectively be trapped,” said Leon Westgate, an analyst at Standard Bank Plc in London. The mass cancellation activity at the location “looks unrealistic” and may boost physical premiums should demand re-emerge, he said in a report yesterday.
There are 59 warehouses approved by the LME to store metals in New Orleans, according to the exchange website. Glencore International Plc’s Pacorini Metals USA LLC owns 28 of them, while Goldman Sachs Group Inc.’s Metro International Trade Services LLC has 22 storage points. Henry Bath LLC, owned by JPMorgan & Chase Co., has four units and Trafigura Beheer BV-controlled NEMS (USA) Inc. has three.
Premiums paid for zinc for immediate delivery in the U.S. have been unchanged since April at 7.5 cents a pound, data shows They climbed to the highest in more than four years in December.
The long wait at locations such as Detroit allows the warehouse owners to offer “ever-increasing incentives” to aluminum producers, which continues to push up physical premiums, according to Nick Madden, senior vice president and supply-chain officer at Atlanta-based Novelis Inc., which processes about 3 million tons of aluminum a year. The fees added to aluminum for immediate delivery in Europe and the U.S. rose to records, according to Platts, owned by McGraw-Hill Cos.
“What has happened in aluminum is in danger of repeating in zinc as well,” Brown said. “You would expect the market to behave in a similar manner with premiums rising as people find it harder to extract metal from warehouses.”