WAREHOUSE FOCUS - Vlissingen queue shrinks after huge ali rewarranting

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Kathleen Retournekathleen.retourne@fastmarkets.comJoint News Editor - Europe+44 (0) 20 7337 2144

London 19/01/2016 - The queue to take delivery of metal in LME-registered sheds in Vlissingen has fallen to seven months or just 198 calendar days when taking into account the increased load-out rates (LORI) that come into effect on March 1.

Aluminium availability has hit its highest since October following the fresh rewarranting of 206,125 tonnes in Vlissingen, according to today's LME inventory data.

An increase of 500,000 tonnes towards the end of October and start of November reflects attempts by warehousers to attract material away from Vlissingen and into Rotterdam - it is likely that some of this metal has been rewarranted as the pass-the-parcel of inventory continues.

The metal may also be returning to sheds following the re-emergence of a backwardation - the cash/threes spread flared out to $7.50 last week from a $4.75 contango on Monday, with all nearby dates until April trading in backwardation.

While today's deliveries have resulted in a softer cash/threes spread - it was last at $1 - the sensitive Tom/Next was volatile. It was last at $3, having earlier hit $7, while a large warrant holder on the cash date held 50-79 percent of warrants.

Higher outright prices this morning took traders by surprise; the warrant holder was well placed to take advantage of the ensuing short-covering panic.

Aluminium had been under pressure below $1,500 but it peaked at $1,509 this morning after Chinese GDP data, although slightly below forecasts, eased fears about a hard landing in the country. Investors moved back into riskier assets and equity markets stabilised.

But the increased availability ultimately weighed on the metal - it traded recently at $1,487 per tonne, up just $7 on Monday's close.


NEW RULES SHORTEN QUEUE BUT FURTHER CANCELLATIONS EXPECTED

The size of the Vlissingen queue is in stark contrasts to data last week showing that the waiting time for aluminium at Pacorini Metals' sheds was 302 calendar days or 10 months (210 working days) as of December 31.

But despite the decline since then, market participants have said that further cancellations are likely in the run-up to the implementation of the new LME regulations.

Under LORI, which will come into effect on March 1, all warehouses with more than 150,000 tonnes of metal in one location will be subject to daily load-out requirements compared with those with 300,000 tonnes or more currently.

And warehouses with more than 900,000 tonnes of metal - currently, only Pacorini in Vlissingen is affected - will have to deliver 4,000 tonnes per day instead of 3,000 tonnes per day.

Alongside LORI, the exchange will introduce queue-based rent caps (QBRC) and anti-abuse measures from May 1 next year to discourage LME-listed warehouses from creating queues in the future.

When news of this reached the market, the Vlissingen queue spiked - around half a million tonnes of aluminium were cancelled over a seven-day period from the end of October. This sent the queue from a four-year low of 224 days to a waiting time of 480 calendar days early in November.

Some warehouse owners had predicted the spike back in September - they had claimed that the convoluted QBRC process was open to abuse and that large volumes of material would start to be cancelled at queue locations such as Vlissingen by stock owners seeking rent-free storage.

According to FastMarkets calculations, Pacorini could still have around 100,000 tonnes of metal in the queue that should be subject to rent discounts when QBRC takes effect around June 1 - although this is considerably lower than the 400,000 tonnes calculated back in November.

Still, the LME's anti-abusive measures mean that not all the tonnage would qualify for half-rent or free rent at the same time.


(Additional reporting by Perrine Faye, editing by Mark Shaw)



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