RPT-Consumers battle warehouses for aluminium stock-Assomet

Makers of aluminium products in Italy are struggling to obtain metal stored in warehouses owned by banks and commodity traders, and are paying high premiums despite the market being in chronic oversupply, the country's non-ferrous metals body Assomet said.

The oversupply and simultaneous lack of availability is under scrutiny as it has worsened since banks and trade houses which speculate on price bought warehouses, giving them insight into one of the key drivers of price - metal stocks.

"We face a mountain of metal, enormous excessive global stocks but availability of the physical metal is below what it appears to be," Mario Bertoli, chairman of Italy's non-ferrous metals body Assomet, told Reuters at an aluminium manufacturers trade fair in northern Italy.

"Many of our association members, metal users, have had problems ... both getting hold of metal and paying extra high premiums," he said.

Bertoli did not name the firms which had run into problems getting aluminium or which warehouses they had complained about, while the companies themselves were tight lipped.

"People who work with big traders and big warehouses will not talk about their problems because they want to keep working with them," said one industry insider on condition of anonymity.

Industry traders though have cited months long queues to get metals out of warehouses registered with the London Metal Exchange in the Dutch port of Vlissingen, the Malaysian port of Johor, and in the U.S. port city of Detroit.

For example LME data shows nearly a million tonnes of stock waiting to leave Vlissingen, but the rest of the market for spot physical trades is more opaque.

"The fact that banks also own warehouses is surely not a step towards transparency. It does help create speculative situations on the market," Bertoli said.

Back in 2010, Assomet raised concerns that acquisitions of warehouses registered with the LME by financial institutions could lead to a conflict of interest as they might use their knowledge of stock movements to speculate.

The banks and trade houses point out that their subsidiary warehouse companies are not allowed to talk to their trading departments, and that aluminium base prices are low for consumers, thanks to the oversupply caused by financing demand.

But some industry players remain aggrieved by the situation.

STORE OF VALUE

Bertoli said massive injections of liquidity into a relatively small metals market had led to "financialisation" of industrial metals such as copper and aluminium. Aluminium in particular has become almost a store of value for financiers.

Most of the estimated 10 million tonnes of stocks, both on and off exchange, are tied up in financing deals and unavailable to the market, while much of the available stock in LME-registered warehouses is stuck in queues.

The situation is lucrative for warehouses owners, who pay an incentive for producers to deliver metal to them, and make up the difference and more by charging clients rent for storing the metal, even when it is stuck in queues.

The incentive paid by warehouses effectively acts as a premium, meaning fabricators have to match that figure in order for a producer to deliver metal to them rather than to a warehouse.

The supply squeeze caused by the entry of financiers into the market has also started to engulf other metals, many of which are stuck behind the aluminium queues in LME-registered sheds.

Zinc supply is tight and premiums high as it has become a second favourite for financing deals, while copper stocks in LME-sheds in Europe are all flowing to China, where the metal is being held by speculators who use it as collateral for raising cash.

"I think it is in the LME interest to monitor the situation better," said Bertoli, who is also managing director of a leading Italian aluminium product maker Metra.