FOCUS - CCI building ali stocks at oil facility in New Orleans - sources

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Perrine Fayeperrine.faye@fastmarkets.comDeputy Editor-in-Chief; Head of Physical+44 (0) 20 7337 2140

London 10/10/2016 - Castleton Commodities International (CCI) has been building a stockpile of aluminium around an oil facility in Braithwaite on the outskirts of New Orleans and more tonnage is on its way, industry sources told Metal Bulletin.

Speculation around the scheme has been rife in recent weeks, with market participants disagreeing on the volume accumulated there and the rationale behind it, to the extent that some are calling it "the Braithwaite mystery".

According to well-informed local sources, CCI has already moved around 125,000 tonnes of aluminium to a 380-acre facility in Braithwaite, on the Mississippi River's east bank south of New Orleans, and plans to double that volume by end of the year.

Former Henry Bath manager Amanda England, who started at CCI in March this year, runs the facility, which is believed to be a complex that CCI obtained via the acquisition of Morgan Stanley's oil merchanting business in 2015.

England declined to comment when contacted by Metal Bulletin while CCI representatives were not available.

"They started accumulating tonnage last May - they have 125,000 tonnes now," one source said. "There is a vessel in town now and one coming next month. I think there will be 175,000 tonnes by year-end, although their plan is to accumulate 250,000 tonnes."

"It is 110,000-125,000 tonnes right now, mostly units from Asia and Rusal," another source said. "There will be another 25,000-40,000 tonnes by the end of year. I doubt they will get to 250,000 tonnes by year-end but I do believe that it is their goal."

The aluminium comes by ship into New Orleans and is trucked from there to Braithwaite, which is some 25 km away.

CCI, which is headquartered in Stamford, Connecticut, has expanded into metals under the helm of Peter Sellars in the past two years and has become especially active in aluminium and zinc. Sam Hainsworth, formerly at JP Morgan and RBS Sempra Commodities, is running its aluminium book.

CCI is financing the aluminium stocks using the LME forward contango, rent-free storage and cheap borrowing costs due to low interest rates, Metal Bulletin understands.

"They bought stock at low premiums and they are chucking it in their yard at a rental cost of zero compared with 4-5 cents in other facilities in New Orleans," a third source said.

The mathematics of the storage costs depends on the premiums and spreads at the time that CCI bought the metal - the company would most probably have locked up the spreads over a long period. But with contangos narrowing to below the cost of financing, some believe the plan to be somewhat risky. 

"It's dangerous - it's a delivery risk with no LME backstop. Maybe they bought naked with a long-term view but that's a lot to gamble unhedged," the second source said.

The LME December-to-December spread has been relatively stable since CCI started stockpiling in May at $38-39 per tonne but cash/threes tightened to around $6.75 per tonne contango on Monday, October 10 from $13 last week, with more spread volatility on the horizon.

(Editing by Mark Shaw)



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