Manufacturers feel pinch as more LME aluminium is stuck in Detroit

Makers of products such as cans and packaging foils face record high aluminium surcharges in the U.S. Midwest as more of the metal gets sucked into backlogged warehouses in Detroit that are registered by the London Metal Exchange (LME).

According to data from the exchange, stocks in Detroit have risen by 183,000 tons in the last three days to total 1.477 million tons, their highest since December 2012. The leap has pushed global LME stocks to a record 5.414 million tons.

While aluminium supplies are plentiful on paper, two separate sources told Reuters surcharges or 'premiums' paid over the LME cash price to cover physical delivery costs are at a record of around 12 cents per lb in the U.S. Midwest.

This is because the lion's share of spare metal supplies have been sucked into LME warehouses in Detroit, where anyone wishing to withdraw them faces a long and costly wait of more than a year.

"The queues in Detroit are set to rise and premia will remain high. On the basis of history - why take these stocks in if they aren't going to be booked for delivery and form the queue," said Macquarie analyst Colin Hamilton.

The LME has come under strong criticism over the past year for not doing more to tackle warehouse companies who, industry sources say, pay incentives to attract metal to their backlogged sheds in a bid to bump up rental revenues.

The exchange was sold to Hong Kong Exchanges and Clearing last year for $2.2 billion, though HKEx chief executive Charles Li said shortly after that the issue of warehouse backlogs almost derailed the deal.

The backlogged warehouses in the LME network are typically run by companies owned by big banks and trade houses like Goldman Sachs and Glencore Xstrata.

In April, sources with knowledge of the matter said Goldman had explored the sale of its metals warehousing business Metro International - which owns nearly all the sheds in Detroit - though no final decision had yet been made.