EU Plans to Discuss Metal Premiums and LME Warehouse ‘Issue’
The European Commission will discuss aluminum premiums and “difficulties” in getting metal from warehouses monitored by the London Metal Exchange, at a time when consumers pay record fees to obtain metal.
“We can confirm that industry, especially aluminum industry, has brought to our attention the difficulties with accessing material from LME warehouses and abnormal high premiums,” Carlo Corazza, a spokesman for the commission’s Enterprise and Industry Directorate General, said in an e-mail in response to questions from Bloomberg. “We are planning to discuss the issue with DG MARKT,” or the Internal Market and Services Directorate General, he said.
Premiums added to the price of aluminum for immediate delivery on the LME surged in Europe and the U.S. amid stockpiles at near-record highs. Supply is being limited due to metal tied to financing arrangements and it may take weeks to withdraw metal from LME-monitored warehouses, according to Societe Generale SA. The exchange increased in April the minimum amount that must be delivered daily after complaints.
Miriam Heywood, a spokeswoman for the LME, declined to comment on the discussions by the EC, the European Union’s regulatory arm.
The LME, the world’s biggest metals bourse, will introduce a separate requirement for nickel and tin next April. A review of warehouse delivery rates is under way, LME Chief Executive Officer Martin Abbott said last month. The exchange has more than 600 registered warehouses worldwide in locations from Singapore to the Netherlands.
The EC discussions “might be a prelude to a full-scale investigation,” according to Robin Bhar, an analyst at Societe Generale in London. “They are looking at it, asking the question: ‘do they, or do they not need to investigate further?’ I think this will lead to some decision whether it’s yes or whether it’s no.”
The premium added to the price of aluminum for immediate delivery on the LME is at a record $280 to $295 a metric ton at warehouses in Rotterdam, according to Platts, a unit of McGraw- Hill Cos. The surcharge includes a duty into the EU. At today’s LME cash price of $1,901.50 a ton, the current European premium means about 15 percent of costs can’t be hedged to protect from price changes, according to Bloomberg calculations.
Inventories of the lightweight metal are at 5.1 million tons after climbing to a record 5.13 million tons in February, LME data showed today. About 65 percent to 70 percent of the LME stockpiles are locked in so-called financing transactions and not available to the market, while warehouse companies offer incentives to producers to deliver metal, according to Societe Generale.
“Metal is locked away,” Bhar said. “It’s not available to the market, which is creating tightness, and consumers are having to pay up higher and higher premiums to get metal from their traditional sources of supply, which is from the producer.”
At current minimum delivery load-out rates set by the LME, metal buyers may wait as long as 55 weeks to obtain metal in the Dutch port of Vlissingen, which accounts for 55 percent of European LME aluminum stockpiles and 26 percent of global inventories. Metals traders Glencore International Plc (GLEN), Goldman Sachs Group Inc. and JPMorgan & Chase Co. own some of the warehouse companies approved by the exchange.
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