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LME rule change could prompt billet output rise

Keywords: Tags  billet, billet premium, LME, warehouse, rules, aluminum, Michael Cowden


CHICAGO — Some aluminum billet market participants have predicted that the proposed new London Metal Exchange warehouse load-out rules could see billet production ramp up.

The proposed rules, aimed at trimming long queues for metal at LME-registered warehouses (amm.com, July 1) would make warehouse deals for P1020 ingot less attractive leading producers to mull whether they should realign output towards more billet than P1020, billet market sources said.

“It is being discussed. (Producers) are considering moving some P1020 production to billet,” a consumer source told AMM.

Midwest P1020 premiums have become a reflection of warehouse dynamics since banks and trading houses became involved in their ownership, one billet producer source said. “Midwest (premiums) used to be based on freight, and now it has almost absolutely nothing to do with it,” he said.

The U.S. Senate plans to hold a hearing July 23 about whether banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc.  should be allowed to control warehouses as concerns (amm.com, July 17 ) Banks and trading companies havealso been ordered by the U.S. Commodity Futures Trading Commission (CFTC) to preserve documents ahead of a possible investigation into warehousing activities, sources said (amm.com, July 22) .

JPMorgan acquired Henry Bath in February 2010 as part of its purchase of RBS Sempra’s metals trading business, the same month Goldman bought Metro International Trade Services LLC. (amm.com, Feb.19, 2010). Trafigura Ltd. acquired Nems in March and Glencore International Plc followed in August with its purchase of Pacorini Metals BV.

Meanwhile aluminum billet premiums eased slightly last week amid scattered reports of motivated sellers offering material at discounted prices.

AMM has adjusted its billet premium to a range of 11 to 12.75 cents from 11 to 13 cents previously.

Both producers and consumers generally agreed that business in 2013, while fair, has not been as strong as expected in 2012 and that forecast short supplies in the billet market, used by sellers to flog higher premiums during contract negotiations last year, has not materialized.

“(Producers) said it would be tight, tight, tight when, in fact, it’s been just the opposite. It’s a joke. They’re not only wrong, they’ve lost credibility,” said a second billet consumer, echoing the sentiment of others.

A third consumer agreed, predicting that billet contract premiums for 2014 would be lower than those in 2013. “The driver behind last year (2012 negotiations for 2013 metal) was people being fearful of not getting enough billet ... and that’s not the case going into 2014 (negotiations),” he said, pointing in particular to producers playing up potential shortages resulting from a labor disruption at Alcoa Inc.’s majority-owned Aluminerie de Bécancour Inc. that never happened (amm.com, Feb. 22).

A potential impact of lower billet premiums in North America might be a drop in imports, the producer source said. “If the premium is high, it attracts more imports. And if it were to drop, the opposite would happen and billet could become tight,” he said, contending that spot availability remains limited at domestic suppliers and prompt metal expensive.

But the second consumer brushed aside any notion of lower billet premiums reducing offshore supplies, ticking off projects expected to boost capacity in the Middle East and Chinese capacity relocating to western provinces but not dropping significantly.

If North American premiums were to nosedive, offshore material might be offered first to Europe and Australia, he said. “But there is just so much capacity coming on that ... it will eventually be here, too,” he said.

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