Commodity trader Trafigura has earmarked for delivery unusually large volumes of aluminum at London Metal Exchange (LME) approved warehouses in Malaysia, two sources with direct knowledge of the matter said, raising exchange supply concerns.
Swiss-based Trafigura recently cancelled warrants — title documents that confer ownership — totalling more than 132,000 tonnes of aluminum at LME warehouses in Port Klang, Malaysia, the sources said, more than 20% of available LME stocks.
Cancelling warrants indicates intention to take delivery of metal from LME warehouses.
Trafigura declined to comment.
Aluminum stocks in LME warehouses hit two-month highs of 573,075 tonnes in the middle of April, easing worries about availability of the metal in the LME system and weighing on prices which are down 15% since January.
Benchmark aluminum prices at $2,270 a tonne have also been under pressure from worries about growth and rising demand for the metal.
However, the cancellation of large amounts of aluminum warrants this week fuelled concern about LME supplies and influenced price differentials between contracts along the maturity curve, industry sources said.
The discount or contango for buying aluminum tomorrow and selling it the day after – known as tom-next — flipped into a premium or backwardation, which hit $11 a tonne this week. It hit a session high of $8 a tonne on Thursday.
Further along the maturity curve a $5 a tonne discount on Tuesday for the cash over the three-month aluminum contracts reversed into a premium, touching $14 a tonne, the highest since October last year.
“As per normal procedure, the LME Market Surveillance team has been carefully monitoring the aluminum market and engaging with all parties involved to ensure market orderliness and conduct are maintained,” the LME said in response to a request for comment.
Focus in the LME aluminum market this week was also on a short aluminum futures position with 20-29% of open interest – the number of outstanding contracts due to mature or be rolled over at settlement on May 17.
Latest LME data shows three short aluminum positions maturing in June. One holding 10-19% of open interest and two others with 5-9%.
Also attracting attention was a long aluminum position held by IXM owned by China’s CMOC Group, with large amounts of LME aluminum warrants and nearby contracts, a third source with direct knowledge of the matter said.
IXM declined to comment.
(By Pratima Desai, Eric Onstad and Polina Devitt; Editing by Elaine Hardcastle)
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