The Dutch city of Vlissingen, a former fishing village, surpassed Detroit as the largest location for aluminum in London Metal Exchange warehouses.
Inventories in Vlissingen climbed 1.4 percent to a record 1.44 million tons, LME figures showed today. Stockpiles in Detroit dropped to 1.42 million tons. It’s the first time Vlissingen had more aluminum stockpiles than Detroit since at least 2006, according to data compiled by Bloomberg.
Supplies of the metal used in cars and planes have doubled in Vlissingen since December last year while they climbed 21 percent in Detroit. Some inventories are being used in financial transactions and aren’t available to consumers, while buyers have to wait to obtain metal from LME warehouses.
“There is a different value of stock depending on where it is with the metal held in Vlissingen and Detroit not being particularly useful to anyone given the queues there,” Nic Brown, head of commodity research at Natixis SA in London, said by phone today. Detroit and Vlissigen “have been going neck and neck for a while now.”
At the current minimum daily delivery rate set by the LME, it may take as long as 48 weeks to get metal at warehouses in Vlissingen, and as long as 54 weeks in Detroit.
Pacorini Metals, owned by commodities trader Glencore International Plc, has 40 out of 42 storage points in Vlissingen, according to the LME website. That compares with seven sites it had in August 2011. Metro International Trade Services LLC, owned by Goldman Sachs Group Inc., has 29 of 37 warehouses in Detroit.
“Those are the two locations where there are some of the biggest concentrations of warehouse ownership,” Gayle Berry, an analyst at Barclays Plc in London, said by phone today. “When you marry that up with LME load-out rate, which is per warehouse company per location, then it means that metal coming out from those locations will be much smaller than from locations where there are several warehouse companies and less concentration of warehouse ownership.”
The LME, which has a network of more than 700 warehouses worldwide, requires companies with metal stockpiles of more than 900,000 tons to deliver at least 3,000 tons a day. The exchange doubled the rate in April to tackle waits in Detroit. It will introduce a separate delivery requirement for nickel and tin and may add an extra 500-ton minimum load-out rule for locations where at least 30,000 tons of a single metal is earmarked for delivery, the exchange said last month.
Stockpiles of aluminum in LME-monitored warehouses rose to a record 5.2 million tons on Nov. 30. About 80 percent may be tied to so-called financing transactions, according to Barclays. A financing transaction involves a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery dates trade at higher prices than nearer-dated metal. Financing costs and expenses to store metal influence profits on the transactions.
“The large amounts of metal locked up in Detroit and Vlissingen are almost certainly linked to long-term financing deals,” Brown said. “If you are buying aluminum and you are given a warrant for metal in a location somewhere, those two are the very last ones you want to be given. Clearly if there is easy access to metal elsewhere then warrants of metal held in other locations will be significantly more valuable than metal held in Detroit and Vlissingen.”
Warrants are documents entitling holders to take possession of a specific amount of metal at a particular LME-approved warehouse. They are issued by warehouse companies on request from owners of metal that has been delivered into an approved location. Vlissingen was listed as an LME location in 1995 and approved for storing aluminum a year later and Detroit was listed for storing metals in 1992, according to the LME.
Aluminum for three-month delivery fell 0.4 percent to $2,117.25 a ton by 3:51 p.m. on the LME. Prices are up 4.8 percent this year.