Aluminum may extend declines to as low as $1,600 a metric ton in the first half of 2014 as new rules from the London Metal Exchange make more metal available, said analyst Helen Lau of UOB Kay Hian Ltd.
Warehouses listed with the world’s largest metals bourse will have to release more of the commodity than they take in from April 1, the LME said last month after consumer complaints on waiting times and probes by U.S. regulators. Prices will be depressed regardless of whether the stockpiles go directly to users or shift to non-LME warehouses, Lau said.
Aluminum, used in everything from cars and airplanes to beer cans, is poised to drop 14 percent this year after trading at the lowest in more than three years on Dec. 2. While LME- tracked inventories climbed to record 5.5 million tons in July, consumers including brewer MillerCoors LLC complained of lengthy wait times for supplies that inflated costs.
“In the first half of next year we expect further pressure on prices because of the supply,” said Hong Kong-based Lau, who has monitored metals for five years. “After that, there will be even more uncertainty because some of the stockpiles will go to unreported warehouses, which will make it difficult to gauge.”
Stockpiles held outside warehouses tracked by commodity exchanges total 5 million to 6 million metric tons now, from 6.03 million tons at the end of 2012, Andrew Shaw, head of base-metals research at Credit Suisse Group AG, said today by phone from Singapore. Those tracked by the LME stood at 5.47 million tons, while Shanghai Futures Exchange deliverable inventories total 181,644 tons, the Chinese bourse said.
The LME, where investors bought and sold contracts worth $14.5 trillion last year, oversees more than 700 warehouses around the world.
Withdrawing aluminum from stockpiles takes 16.17 months in Detroit, compared with June’s record of 19.3 months, and 14.8 months in Vlissingen, against an all-time high of 20.2 months in June, according to estimates by researcher Harbor Intelligence, which is based in Austin, Texas. The two cities have the longest wait times for withdrawals in the LME’s global network of warehouses.
Metal earmarked for withdrawal from LME-registered sheds totaled 2.36 million tons as of Dec. 24, accounting for 43 percent of total LME aluminum stockpiles at 5.47 million tons, exchange data show. Aluminum piled up at warehouses due to accumulated surpluses during 2008-2011, said Credit Suisse’s Shaw.
“Other than rises in interest rates that make alternative money-market investments more attractive, the only other aspect that could dampen cash-and-carry trade would be more forceful regulatory intervention,” Shaw said. “This seems unlikely to emerge in a hurry.”
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