One Investor Snapping Up LME Aluminum, Causing Supply Shock

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The aluminum market is showing signs of severe stress as one investor has scooped up the majority of available cash metal, roiling prices and stoking supply concerns amid a revival in demand from the automotive and construction sectors.

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Traders wanting to roll over contracts must pay London Metal Exchange prices that are close to two-year peaks and the cost could spike further as record premiums, the charge to obtain physical metal, encourage traders to hoard.

The cost of rolling a short cash position for delivery tomorrow or the next day has soared above $7 per contract for the four trading days since a dominant warrant holder appeared on Nov. 26 as short holders raced to cover their positions. On Monday, it was as high as $10, its loftiest since December 2012.The spread between spot and three-month prices has swung in and out of backwardation in recent months, meaning cash is more expensive than later-dated contracts, Reuters reported.

On Wednesday, December 3, the cash price of primary Indian aluminum fell by 2.4%, landing at INR 122.90 ($1.99) per kilogram and making it the day’s biggest mover. The primary aluminum cash price weakened by 0.3% on the LME, settling at $2,015 per metric ton. Following a two-day drop, the aluminum 3-month price increased by 0.2% on the LME to $2,002 per metric ton.

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Prices of Chinese aluminum were down across the board yesterday. Following a quiet couple of days, the price of Chinese aluminum billet fell 1.4% yesterday to CNY 13,700 ($2,229) per metric ton. The Chinese aluminum cash price fell 1.3% to CNY 13,350 ($2,172) per metric ton. Chinese aluminum bar closed 1.2% lower at CNY 14,340 ($2,333) per metric ton. Chinese aluminum scrap prices saw a 0.8% decline to CNY 12,600 ($2,050) per metric ton.

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