Aluminum costs seen dropping as LME unclogs depots

The London Metal Exchange’s plan to ease congestion at warehouses storing near-record amounts of aluminum will accelerate deliveries and reduce premiums paid for supply, at a time when prices are already near a four-year low.

European premiums excluding duty will drop as much as 15 percent to $145 a metric ton by the end of the June, the lowest since 2012, according to the median of estimates from 10 consumers, traders, producers and analysts surveyed by Bloomberg News.

The rise in physical premiums contrasts with slumping futures. The LME’s benchmark three-month contract fell 11 percent this year and will average $1,900 in the second quarter, when the new LME rules may start, the median of 13 analyst estimates compiled by Bloomberg shows.

This year’s decline in aluminum compares with a 1.7 percent drop in the Standard & Poor’s GSCI gauge of 24 commodities and a 13 percent gain in the MSCI All-Country World Index of equities. The Bloomberg U.S. Treasury Bond Index lost 2.5 percent.

Supply is outpacing demand for a seventh consecutive year and will keep doing so until at least 2018, Morgan Stanley estimates.

Financing is at its most profitable in at least 4 1/2 years, according to Macquarie Group Ltd. Aluminum for December delivery traded at a discount of $130.50 to the December 2014 contract on Oct. 2, the widest since at least February 2009.

The LME is proposing to oblige warehouses where withdrawals take more than 100 days to deliver out more metal than they take in. The plans may already be altering the flow of metal to depots, with average daily arrivals dropping to 5,849 tons last month, from about 19,000 tons a year ago.

Rusal (486), based in Moscow, will report profit of $190.5 million, from a $55 million loss in 2012, the mean of seven estimates shows. Its shares slumped 51 percent to HK$2.40 this year and will rebound to HK$3.16 in 12 months, according to the average of 14 predictions.

Global economic growth that the International Monetary Fund says will accelerate to 3.8 percent in 2014, from 3.1 percent this year, still won’t be enough to erase the glut. Supply will exceed demand by 350,000 tons next year, Deutsche Bank said in a Sept. The cuts may be offset by rising output in China, which makes almost half of the world’s aluminum. Output there will expand 7.9 percent next year and 8.1 percent in 2015, Deutsche Bank estimates.

“The high level of premium perpetuated by the queues has been keeping a lot of smelters in business which shouldn’t have been there,” said Colin Hamilton, the head of commodities research at Macquarie in London. “The market has to rebalance and it can only be balanced by shutting off capacity and you need the prices to go down to shut off that capacity.”