July 22 (Bloomberg) -- European premiums paid for aluminum are expanding because stockpiles in warehouses are tied to financing deals, curbing supply, CRU Group said.
The fee, added to the price of metal for immediate delivery on the London Metal Exchange, reached a 10-month high of about $65 a metric ton for deliveries into Rotterdam warehouses, said Massimo Rossi, an analyst at the research group. The premium was $55 about a month ago and $35 at the beginning of 2009, London- based Rossi said yesterday. Rotterdam is Europe’s largest port.
Aluminum for three-month delivery climbed to a seven-month high of $1,754 a ton in London yesterday because of supply constraints. About 60 to 70 percent of
LME inventories are tied up in financing deals, which allow producers and traders to use stockpiles as loan collateral and profit from higher aluminum prices later in the year, Rossi said.
The so-called contango, with nearby contracts trading at a discount to longer-dated equivalents, spurred producers and traders to store metal, he said. Higher prices on the exchange and the increase in premiums may now make it less attractive for producers to lock inventories into financing deals, Rossi said.
“The jump in premiums is probably dependent on the cost of breaking the warehouse financing agreements,” Rossi said. Given that the cost would be about $50 to $60 a ton, “premiums are not likely to go higher.”
LME-monitored stockpiles almost doubled this year to a record 4.6 million tons as demand from the packaging, transport and power industries slumped with the global economy enduring its worst recession since World War II.
In Japan, fees rose 36 percent from May to June to about $100 a ton, Rossi said. Premiums jumped 14 percent in the same period to 4.8 cents a pound in the U.S., he said.
To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net
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