London 24/08/2016 - Large amounts of off-warrant aluminium have been dumped into London Metal Exchange-listed warehouses in Korea and there could well be further deliveries, traders told FastMarkets.
According to LME data that is two days in arrears, 30,475 tonnes of aluminium arrived into Korean sheds this morning - 20,400 tonnes into Busan and 10,075 tonnes into Gwangyang.
This follows 18,525 tonnes delivered into Busan on August 18 and 4,950 tonnes on August 16, bringing total deliveries to 53,950 tonnes into Korean sheds in August so far. The 10,075 tonnes into Gwangyang are also the first delivery into LME sheds in that port since April 2015.
This material is from the large stockpiles of off-warrant material that have been stored in Korea for several years, FastMarkets understands. There are an estimated 400-500,000 tonnes of aluminium still held off exchange-listed warehouses in the city.
"These deliveries for sure are just coming from off-warrant stocks. I think they will continue too," one trader in Singapore said. "It also seems like it was more of a strategic decision someone has taken rather than just a delivery against a backwardation."
Triland also understands that the metal originates from the large off-warrant stocks held in the region, it noted in a report this morning.
Low premiums and unattractive financing opportunities have been prompting a shift of sizeable volumes of off-warrant aluminium back to listed LME warehouses in Asia over the past few months.
Further, spreads have been tight for some time. While the nearbys remain in contango, many feel that there is an impasse in the market - the contango is not wide enough to incentivise the holding of metal.
The benchmark cash-3s was last in a $12 contango, up from around $8-9 a week ago.
Equally, with no solid backwardation in the market since a squeeze earlier in the year, some holders have become increasingly frustrated at the lack of direction.
"You're not doomed to store your metal off-warrant at the moment considering the current spreads so it appears to be more of a strategic decision where someone wants to just cut their losses," another said.
(Editing by Mark Shaw)