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Aluminium supply worry fuelled by financial deal

Posted on: June 20, 2009


Reuters – Friday, June 19

By Pratima Desai

LONDON, June 18 – Supplies of aluminium in the short term are tighter partly because companies with metal are using it as collateral to release cash tied up in stock, analysts and traders said.

Worries about shortages, despite record high stocks, are reflected in the narrowing contango — the discount for cash material over the three-month contract — at around $30 a tonne compared with levels around $35 a tonne on June 1.

“A lot of material is locked up in financing deals and can’t be moved out of warehouses for some months, maybe up to 6 months, maybe longer,” an analyst at a European Bank said.

A warehouse manager in Rotterdam confirmed to Reuters that a lot of aluminium in his company’s warehouse was tied up as collateral for financing deals with banks.

Traders said aluminium locked up in warehouses was also behind the higher premiums for physical material over the cash price <MAL0> on the London Metal Exchange.

European premiums have risen to above $60 a tonne from about $55 a tonne earlier in June, following those in Asia, where consumers have been told by Russia’s United Company RUSAL they will not be getting any aluminium. [ID:nPEK188568]

RUSAL is instead thought to have sold a large chunk of its output to Swiss trader Glencore to raise cash.

Both RUSAL and Glencore declined to comment.

Estimates for the amount of aluminium sold to Glencore vary, but market sources told Reuters the most likely figure was 500,000 tonnes — worth about $800 million at current prices <MAL0> around $1,690 a tonne on the London Metal Exchange.

Some also think RUSAL had sold the metal at a discount to the LME cash price <MAL0> and that Glencore had paid cash.

“It’s not surprising given that RUSAL are so desperately short of cash … It works out really well for RUSAL if they can get a guaranteed sale for cash,” said a senior London-based metals trader.

Glencore owns 9.7 percent of RUSAL, which is battling to repay more than $7 billion of debt to international banks.

“It works for Glencore too in terms of premiums,” the trader said. “Glencore will wait for a while and when premiums are higher, they will sell the metal back into the market.”

Some say the amount sold by RUSAL to Glencore could be as much as 900,000 tonnes. That compares with an aluminium market estimated at around 37 million tonnes.

“That would be a fair chunk of the market,” another London-based analyst said. “If Glencore hadn’t bought it, it would have been heading for the LME.

Aluminium prices have come under pressure from rising stocks of aluminium in LME warehouses, which have hit record highs most days since January 22. Currently they stand at above 4.37 million tonnes.

But the deal between RUSAL and Glencore has boosted aluminium <MAL3>, which last week touched $1,701 a tonne, the highest since early December.

(For a factbox on aluminium premiums agreed by Japanese consumers click on [ID:nT122407]

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