ISTIM UK held 35% of aluminium stocks in its warehouse in Malaysia; longer queues likely to be back in LME warehouses

LME data shows that Warehousing firm ISTIM UK held 35% of aluminium stocks in its LME registered warehouse in Malaysia by the end of November.  Reuter reported aluminium stocks in ISTIM’s Port Klang and Johor warehouses increased 213,275 tonnes to 476,846 tonnes in November.  Total aluminium stocks in LME warehouses stood at 1.27 million tonnes at the end of November.

The business model of ISTIM covers queues to take metal out of warehouses and earning rent from storage. LME reformed its storage rules in 2014, when metal delivery queue at Detroit soared to two-year highs.  According to industry sources, the metal in ISTIM warehouse in Malaysia will have come in under deals where the warehouse shares the rent for storing metal with the firm that put it into the warehouse.

It was reported in September that LME was planning to allow longer warehouse queues for loading out metal from next year. The current rule allows full rent payable for 30 days, half rent for 20 days and no rent after 50 days. LME has proposed to change that to full rent till 80 days and no rent thereafter. Under such circumstance, warehouses could pay metal owners larger incentives to put metal on LME warrant instead of offering it to the physical market for sale with premiums.

“Incentives on aluminium in Malaysia are around $60 a tonne now, when the new LME rent rules come into effect, that incentive will rise to at least $80 next year,” an aluminium trader said.

Costs of storing aluminium in Malaysia are about 8 U.S. cents a tonne compared with the 56 cents a tonne ISTIM charges to store metal under LME warrant. Currently, it offers 11-day queue for taking out metal from ISTIM warehouses in Port Klang.

The market had been expecting large deliveries of aluminium to LME-approved warehouses because of a premium for nearby against metal for delivery at a future date, which appeared at the start of November.

Large deliveries of aluminium are expected in LME registered warehouses because of the backwardation in the market, in which sellers are charging more premiums for cash contracts than future contracts. 

The premium for the cash over the three-month contract rose to US$22 per tonne tonne last week, its highest since July 2018, while the premium for the December contract against the January contract climbed above US$17 in early November.

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