Cancellations of aluminum warrants listed on the London Metal Exchange have risen over the past week, with canceled warrants rising by 45% since last Friday.
The rise in live warrant cancellations -- those marked for delivery out of the warehouse -- meant that as of September 22, 20% of all exchange listed stocks were canceled.
On a net basis, global additional canceled tonnage rose by 102,500 mt over the past week, with all of it being in Asian warehouses. Port Klang warehouses saw most fresh warrant cancellations, with 41,875 mt additional ones during the week, followed by Singapore (30,800 mt), Busan and Gwangyang.
Unlike in the beginning of the year, market sources said there was no arbitrage opportunity to ship metal from Asia to the US so far, despite the fact that US premiums had increased over the past weeks and an expected rise in US demand due to US storm damages.
"There is metal going to the US but there is no arbitrage opportunity currently," a logistics source said.
Basis Platts assessments, US premiums rose to 9 cents/lb, delivered Midwest, net-30 terms as of September 21, from 7.35 cents/lb in mid-August.
"The feeling is that it is not physical business," the source said of the rise in cancellations. "People are taking advantage of eased spreads and they move metal in other warehouses. It is just warehousing games."
LME spreads eased in September back into contango, after a backwardation in August took several market participants by surprise. The LME cash-October spread stood at a $5.50/mt contango at Thursday's close, while the cash three-month spread was at a $24.25/mt contango.
LESS MATERIAL?
Earlier in the week, a couple of European sources said there was more than enough primary aluminum material around either on-warrant or off-warrant, particularly in Europe.
However, the logistics source disagreed.
"I suspect people are overstating about how much metal there is available around," he said. "I believe there is less material being produced and that's not because of Chinese capacity cutbacks as of yet."
International Aluminium Institute data showed that global aluminium production was down 1.3% year on year at 4.95 million mt in August.
Aluminium production outside China expanded by 0.4% on the year. Despite the latest decline on a global level, market expectations are that production will exceed the 60 million mt mark on a full-year basis.
