Aluminum and Copper Empty From World's Biggest Metals Bourseby
LME-tracked copper stockpiles slump most in almost two years
Exchange sees biggest request to withdraw aluminum since 2011
Traders keep pulling material out of London Metal Exchange warehouses.
The amount stored in depots tracked by the bourse has almost halved from a 2013 peak and is near a seven-year low. Copper and aluminum have accounted for the bulk of the decline and here’s why:
Aluminum stockpiles have been falling along with other metals as the LME tightens warehousing rules to prevent queues from building. Traders have also been moving metal outside of the network to benefit from cheaper storage charges, according to Societe Generale SA.
Inventories of aluminum are near a seven-year low and there will probably be more withdrawals. Orders to remove metal surged 26 percent on Thursday on requests to get the commodity out of depots in Vlissingen, and rose 14 percent on Friday due to bookings in Detroit.
That marked the biggest two-day jump since December 2011, when a surge in withdrawal orders at the Dutch city of Vlissingen led to lengthy waits for material. The backlog drew consumer complaints and lawmaker scrutiny, forcing the exchange to strengthen its oversight of its more than 600 warehouses.
Traders have been shifting copper from LME-tracked warehouses to China to take advantage of arbitrage opportunities, boosting the amount held in facilities monitored by the Shanghai Futures Exchange to a record. The movement has also been spurred by traders purchasing metal priced in dollars as a currency hedge amid expectations of a weaker yuan, said Michael Turek, head of base metals at BGC Partners in New York.
Stockpiles of LME-monitored copper slumped 3.7 percent on Thursday, the most since May 2014. Inventories dropped for a 21st day on Friday to the lowest in almost 17 months.
The withdrawals have helped boost copper prices by 17 percent since mid-January. The premium that metal for immediate delivery commands over later contracts has widened this year, a sign that supplies have tightened.
"While LME stocks have dropped quickly, the build taking place in China has been at least as severe," Macquarie Group Ltd. said in a report e-mailed Thursday. This year’s rally in iron ore has also boosted optimism that demand in China, the biggest metals user, may be better than previously expected, it said.
The total amount of six metals in LME facilities has dropped 26 percent in the past year to 4.1 million tons. More than 10 million metric tons of aluminum are held in unmonitored locations, according to Macquarie.
"The bigger picture really is we are awash with aluminum," Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said by phone. "Even though stocks have been falling, the demand isn’t there. We have to assume that most of this metal is going off-exchange."