Aluminium stocks to hit 5 MT; premiums soften-trade

 

 

In November, traders said large inflows were expected this month as a souring economic outlook curbed demand and a European dollar crunch intensified the need for cash ahead of the year end.

 

 

Industry sources said they expect more than 200,000 tonnes more metal to enter LME warehouses in the next week, with most of it expected in the Dutch port of Vlissingen and also Detroit, although much of this is not expected to be available to market.

 

 

"We've had 265,000 (tonnes of aluminium) since last Friday (and are) looking for 500,000 at least...But not in circulation is the thought," said one trader at a London Metal Exchange ring dealing member.

 

 

Another source at a different ring dealing member said, "as we understand it there is a further 180,000-200,000 in Detroit, of which half came in today."

 

 

Consumers have deferred 2012 orders due to Europe's deteriorating outlook which has led to producer metal becoming more freely available, metals industry sources say.

 

 

LME aluminium stocks hit a record high of 4,811,550 tonnes in LME data on Tuesday, following large shipments that have been registered over the past three days. <0#MALSTX-LOC-GRD> MAL-NLVLI-TOT

 

 

"Year-end liquidity factors are perhaps one reason for the aluminium stock flows, perhaps compounded this time by tighter liquidity conditions currently affecting the financial markets," said Standard Bank in a note.

 

 

Also, a premium for nearby dated material against contracts for next year has helped draw metal into warehouses, traders said. MALZ1-F2

 

 

PREMIUM IMPACT

 

 

But the impact on premiums -- the price paid on top of physical metal to take delivery -- is expected to be limited because the metal is not expected to be made available to the market. Owners are expected instead to use the warrants issued by the LME for the metal as collateral to lower funding costs.

 

 

Instead, premiums are expected to slip further into the year end due to a lack of consumer demand, before recovering -- at least briefly -- early next year.

 

 

"Premiums have come down because of a lack of demand in the last couple of months. Nobody wants to sit on stocks towards year end," said a producer source.

 

 

"It will be very interesting to see how that changes going into the first quarter because stock levels are so low that a restocking is absolutely possible should the visibility become better and should it become clear that the European debt crisis can be controlled," he added.

 

 

"So far we have no clear indications on that, and that is why everyone is just preparing for the worst."

 

 

Premiums for Western Duty paid aluminium in warehouse in Rotterdam were quoted mostly in a $145-180 range, down from $155-190 in early December.

 

 

A contact at a European trading house said he expected premiums to pick up next year.

 

 

"The producers are trying to clean up their balance sheet for the fiscal year end," he said..

 

 

"That and the fact that nobody really knows on the buyside what is going on in Q1. Everybody wants to sell, nobody wants to buy. That puts the premiums under pressure. (They have been low) because of year end, (and) there is nothing major booked for Q1. In two weeks time, the 3rd of January. The numbers will look different."