FOCUS - Vlissingen ali availability slumps to 4-yr low on strict LME rules

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

London 27/07/2016 - The London Metal Exchange's (LME) tough stance on warehouse queues has pushed Vlissingen stock levels to their lowest since June 2012, data showed on Wednesday.

Cancellations at the Dutch port rose 27,475 tonnes at this location to 616,900 tonnes, according to today's stock data. With stocks there at 772,375 tonnes, there are just 155,475 tonnes of available material - the lowest for more than four years.

"The metal is not being consumed - it is simply being shoved off-warrant, which has the impact of less transparency as new rules drive stocks off-exchange," a warehouse source said.

The LME has introduced tough reforms aimed at shortening queues over the past three years, targeting warehouse companies with delivery times exceeding 50 calendar days. Rules such as linked load-in/load-out rates and queue-based rent capping (QBRC) are now in force.

Glencore-owned Access World sheds in Vlissingen have been the hardest hit by the measures - it is the only location where there is currently a queue.

"The way it is set up in Vlissingen now is to run the whole thing to zero before any more material is able to be put on here," a second warehouse source said

The queue for aluminium at Access World in Vlissingen decreased to 315 calendar days (220 working days) or 10.5 months as of June 30 from 336 calendar days (233 working days) a month previously, according to the latest LME queue report.

Since QBRC was announced, cancellation moves have been volatile. In the run-up to the May implementation date, a whopping 800,000 tonnes were cancelled - metal owners took advantage of the prospect of cheaper rent.

Market participants had warned that this could be an unintended side effect but LME head of business development Matt Chamberlain countered that it had expected the move and did not anticipate an impact on price discovery.  

"It made sense to weather that short-term impact to have that protection of QBRC and we expect those queues to fall again," he said earlier this year.

Meanwhile, several warehouse firms have implemented charges for metal rewarranting and stock rescheduling to counter the continued bounce of metal being moved on and off-warrant. Aluminium rewarranting at Access World, for example, incurs a fee of $8 per tonne if the load-out slot had already been scheduled or $4 per tonne if a slot had not been scheduled.

"For metal to be attracted back in by a backwardation, it would need to be at least $20 for it to be worth your while, so more stocks are likely to leave Vlissingen," the second warehouse source said.

Three-month aluminium recently traded at $1,589 per tonne, down $2 on Tuesday's close. Meanwhile, the cash/August date was slightly tight at a backwardation of $0.28 while 'Tom'/next was at $0.50.

Global stocks fell 6,000 tonnes to 2,318,125 tonnes - the lowest since September 2008 - and are down from just below three million tonnes at the start of the year, four million tonnes last year and more than five million tonnes in 2014. On-warrant material at 1,367,750 tonnes are back at the lowest since December 2008.

In a reversal of the Vlissingen downtrend, stocks in Asia have risen more than 55,000 tonnes since Thursday and more deliveries are expected amid low premiums and unattractive financing opportunities.


(Editing by Mark Shaw)



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