LME Queues Not Causing Shortages and Cash Price of Aluminum Falls

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The Financial Times reported today that Novelis, in its most recent 10-K, identified the LME queue issue as a risk to its business. According to the story, “In a period of rapidly rising demand, restrictions on access to metal that is stored in LME warehouses or restrained in financing transactions could create shortages in the spot market which could interfere with supplies to our facilities and limit production.” But Charles Li, Executive Director, Chief Executive of HKEx, the exchange that purchased the LME said that he did not believe that industrial buyers can’t access metal.

But one should look no further than the tie-in between the MW aluminum premium price and the LME queue situation. Can one conclude the two factors maintain a statistical correlation? MetalMiner says yes. Does the LME queue situation serve as the causal factor? Though MetalMiner hasn’t run any regression models on this, we’d conclude the answer on that point also looks like yes.

So though technically speaking, accessing metal may not serve as the underlying issue – the real issue involves the inflated MW premium price – coming as a result of the warehousing issue. Certainly Novelis would make a compelling case to say it faces price risk.

The aluminum cash price fell 0.6 percent on Friday, June 7 to $1,927 per metric ton on the LME, making it the day’s biggest mover. The aluminum 3-month price closed at $1,957 per metric ton. Following a couple days of improvement, the metal’s price weakened by 0.5 percent on the LME. After a couple of days of improving prices, the Indian aluminum cash price held steady.

Chinese aluminum closed mixed last Friday. Chinese aluminum billet gained 0.3 percent.  The Chinese aluminum cash price finished the market day up 0.1 percent per metric ton. The price of Chinese aluminum scrap remained steady. The price of Chinese aluminum bar held steady.

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