LONDON (Reuters) – High U.S. aluminum premiums and weaker returns from storage financing deals are likely to lure more metal onto the market from hidden inventories. The bulk of more than 10 million tonnes of global stocks of the metal, mainly used for transport and construction, are outside warehouses certified by exchanges, analysts estimate.
The additional material flowing from these unregulated storage areas could help to fill a gap and supply industrial consumers if U.S. sanctions on Russia’s Rusal remain.
An influx of material, however, could weigh on the market if the United States lifts restrictions on United Company Rusal, the biggest aluminum producer outside of China.
“I don’t think there’s a sense of an imminent correction lower in (U.S.) premiums, so I think trade houses will inevitably liquidate some of those off-warrant stocks to take advantage,” said Nicholas Snowdon, metals analyst at Deutsche Bank.
The CME spot contract tracking the U.S. Midwest physical aluminum premium has more than doubled this year to 22 cents per pound. U.S. premiums for physical metal, paid on top of the LME cash price, spiked early in the year when U.S. President Donald Trump imposed a 10 percent tariff on imports.