Aluminum Metal Supplies Related to Bank Financing - LME

The increase in orders to take aluminum out of Detroit warehouses is related to banks using the metal for financing, said Martin Abbott, chief executive officer of the London Metal Exchange.

The increase in so-called canceled orders at Detroit warehouses monitored by the LME is unrelated to “real” consumption of metal, Abbott said at a Metal Bulletin conference in Paris. Cancelled warrants are orders to take metal out of warehouses.

The canceled warrants in Detroit warehouses have more than doubled this year, to 205,100 metric tons, according to LME data. They make up 67 percent of all aluminum cancelled warrants and 4.4 percent of the global inventory.

Banks are using cancelled warrants to shift metal to “non- listed storage” warehouses that are not monitored by the LME for financing transactions, Abbott said. Aluminum is attractive for financing because there is plenty of metal available, prices are more expensive in the future, and low interest rates allow for metal to be borrowed now and sold later at a profit.

“The opportunity to structure such deals is greater now than ever before due to the seemingly endless availability of cheap finance from central banks,” Abbott said. “Detroit is a prime target in the U.S. for financiers,” he said. That’s because warrants stored in Detroit are “freely available in the market,” he said.