The Midwest surcharge, the U.S. benchmark, will drop 22 percent to 8 cents a pound by the end of June, the Bloomberg survey showed, after the LME will accelerate the delivery of another 2 million tons of aluminum onto the market.
The London Metal Exchange’s plan to ease congestion at warehouses storing near-record amounts of aluminum will accelerate deliveries and reduce premiums paid for supply, at a time when prices are already near a four-year low.
The LME’s benchmark three-month contract fell 12 percent this year and will average $1,900 per metric ton (86.2 cents per pound) in the second quarter, when the new LME rules may start, the median of 13 analyst estimates compiled by Bloomberg shows. Prices reached a four-year low of $1,758 per metric ton (79.7 cents per pound) in June.
Supply is outpacing demand for a seventh consecutive year and will keep doing so until at least 2018, Morgan Stanley estimates. This year’s projected surplus of 1.69 million tons is almost equal to what Japan consumes in a year. While stockpiles in warehouses monitored by the LME reached a record 5.49 million tons in July and now stand at 5.35 million tons, Wood Mackenzie says global inventories are about 14 million tons.
The LME is proposing to oblige warehouses where withdrawals take more than 100 days to deliver out more metal than they take in. The plans may already be altering the flow of metal to depots, with average daily arrivals dropping to 5,849 tons last month, from about 19,000 tons a year ago.