Aluminium stockpiles fall as LME tightens warehousing rules

Traders pulling metal out of London Metal Exchange warehouses is not an uncommon practice. The amount stored in depots tracked by the world's biggest metals bourse has almost halved from a 2013 peak and is near a seven-year low. Aluminium along with a certain other non-ferrous metal has accounted for the bulk of the decline.

Aluminium stockpiles have been falling as the LME tightens warehousing rules to prevent queues from building. Traders have also been moving metal outside of the network to benefit from cheaper storage charges, according to Societe Generale SA.

Aluminium inventories now are near a seven-year low and more withdrawals are being speculated. Orders to remove metal surged 26 per cent on Thursday last week, on requests to get the commodity out of depots in Vlissingen, and rose 14 per cent on Friday due to bookings in Detroit. That marked the biggest two-day jump since December 2011. The backlog drew consumer complaints and lawmaker scrutiny, forcing the exchange to strengthen its oversight of its more than 600 warehouses.

"While LME stocks have dropped quickly, the build taking place in China has been at least as severe," Macquarie Group Ltd. said in a report last Thursday.

The total amount of six metals in LME facilities has dropped 26 per cent in the past year to 4.1 million tonnes. More than 10 million metric tonnes of aluminium are held in unmonitored locations, according to Macquarie.

"The bigger picture really is we are awash with aluminium," noted Caroline Bain, a commodities economist. "Even though stocks have been falling, the demand isn’t there. We have to assume that most of this metal is going off-exchange," he said.