London 06/11/2015 - The recent trend of large cancellations of LME aluminium warrants continued on Friday in a move now believed to involve several trading and warehouse companies that are positioning ahead of the probable implementation of new LME rules granting free rent on metal in a queue of longer than 50 days.
Warrant cancellations - the tonnage earmarked for removal - jumped another 92,825 tonnes today, taking fresh cancellations in the Dutch city to 514,650 tonnes since Thursday last week.
Total aluminium stock cancellations in Vlissingen are now at 930,475 tonnes, double their level seven days ago and the highest since April 24, with the delivery queue stretching to 16 months.
The substantial cancellations at Glencore-owned Pacorini Metals have reportedly been orchestrated by several trading houses including Trafigura and BTG Pactual, while Standard Bank is thought to be behind today’s moves. The companies are moving the metal to nearby Rotterdam, it is believed.
Standard Bank told FastMarkets that it did not comment on market speculation or rumour. Trafigura and BTG Pactual both declined to comment.
After today's cancellations, the queue to get aluminium from Pacorini Metals in Vlissingen has lengthened to 480 calendar days from 224 days at the end of September, meaning the queue now extends to February 27, 2017, according to FastMarkets' calculations that take into account existing LME load-in/load-out delivery requirements.
The trading houses behind the cancellations are hoping to get rent-free metal in the queue beyond May 2016 when new LME warehouse rules may be implemented, several sources claimed.
At the same time, these trading houses have allegedly secured cheaper rent deals with warehouse companies in Rotterdam, partly on a warranted basis and partly off-warrant, the sources added.
In further measures aimed at ending the long waiting times to get material from LME-listed warehouses, the LME has proposed the introduction of queue-based rent caps (QBRC) from May 1 next year. The new rule would force a warehouse to halve the daily rent it charges after 30 days of waiting time and not to charge rent at all after 50 days.
The exchange is "minded" to introduce the rule, it said in September, but it proposed in a new consultation to include anti-abuse provisions that would prevent holders of metal from using the new rule to get free storage.
"The LME has powers to address behaviour that has the effect of artificially creating or maintaining queues, and if such behaviour is suspected we would investigate and take appropriate action. The LME also monitors cancellations of metal as part of its routine surveillance," the exchange said in a statement emailed to FastMarkets last week.
In the previous consultation on QBRC that ended in August, market participants had indeed warned of the risk of large warrant cancellations ahead of the implementation of the rule while metal owners position themselves to benefit from free rent beyond May 1.
If the LME's proposed QBRC anti-abusive measures were to be adopted - as is widely expected by market participants - these fresh cancellations would come onto the exchange's radar. The trading houses involved would then not be able to have their total cancellations free of rent from June 2016, FastMarkets understands.
Indeed, the anti-abusive measures would kick in if a single warrant holder cancelled 10,000 tonnes of metal in one go or cumulatively in the same location, according to the LME proposal.
And the QBRC clock that calculates when the 30 or 50 days have been reached would match the load-out schedule established between the warrant holder and the warehouse company, meaning that not all the cancelled metal would become free of rent after 50 days.
Global LME-listed aluminium stocks have now dropped to 3,010,250 tonnes, their lowest since February 2009 - a drop in stocks to below three million tonnes looks increasingly likely. At the start of the year there were more than four million tonnes of stocks in LME-listed sheds and more than five million tonnes in 2014.
The three-month aluminium price remained stable at $1,508 per tonne on Friday, up just $1 on Thursday's close.
(Additional reporting by Perrine Faye, editing by Mark Shaw)