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More LME warehouse delistings possible: Deverell

Keywords: Tags  LME, warehouses, delisting, aluminum, copper, tin, zinc, Credit Suisse Ric Deverell


LONDON — Queues to obtain metal from London Metal Exchange-bonded warehouses could lead to further warehouse delistings, with Detroit being a prime target, according to Ric Deverell, managing director and head of commodities research at Credit Suisse Group AG.

Vlissingen, the Netherlands, was delisted for good delivery of copper in 2012 following a unanimous recommendation from the LME Copper Committee amid concerns that queues to obtain metal would distort prices and premiums.

Queues in Detroit—where warehouses contain more than 1.4 million tonnes of aluminum, almost 70 percent of which is in the form of cancelled warrants waiting to be delivered out—have already been blamed for inflated premiums for the light metal.

High numbers of canceled warrants cause outbound delivery bottlenecks, meaning warrant holders can face a wait of well over a year to receive their metal.

When the Vlissingen delisting was announced, market participants warned that concerns could spread to other warehouse locations or metals, prompting similar delistings.

"(Further delistings are) quite possible, with warehouses at which queues are the longest being the most likely candidates—Detroit, Vlissingen, New Orleans and Antwerp (Belgium)," Deverell told AMM sister publication Metal Bulletin.

Financing deals have encouraged the delivery of aluminum and zinc into warehouses in recent years, Deverell said. "Aluminum, and for that matter zinc, are two extremes where overall stocks are very high but, paradoxically, much of the metal is tied up in financing deals due to yields offered by their state of contango and low U.S. interest rates."

Copper is less likely to be tied up in financing deals, but is still impacted by queues caused by large volumes of aluminum and zinc, he said (amm.com, Feb. 8).

"This is less true of other metals, including copper and nickel, where forward curves offer less attraction for financing and hence tying up of metal. For copper, the impact has been in reducing access to metal in LME warehouses sitting behind large queues for aluminum and zinc (notably New Orleans and Antwerp)," he said.

There have been some concerns about prompt availability of nickel in LME warehouses and suggestions that committees representing metals which, like nickel, are not yet abundant in Vlissingen will want to move fast to prevent a similar situation developing in their markets.

The LME has already addressed the issue by amending the minimum load-out requirements for nickel and tin, Deverell said. "For nickel, LME queues have not really been a problem, though the LME has taken preventive measures mandating at least 60 tonnes per day of withdrawals of nickel or tin from any warehouses starting April 1, 2013."

A version of this article was first published by AMM sister publication Metal Bulletin.


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