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Monthly Archives: May 2011

Copper Climbs to Three-Week High as Greek May Receive More Aid

Copper Climbs to Three-Week High as Greek May Receive More Aid

Copper rose to a three-week high in New York amid signs that nations will pledge more aid for Greece, boosting global growth prospects.

European Union leaders will decide on additional assistance for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt, Jean-Claude Juncker, who leads the group of euro-area finance ministers, said yesterday in Paris. Stocks rose around the world and the euro climbed.

“We are seeing a macro-based move,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. Optimism that there will be more aid “is causing people to embrace risk,” he said.

Copper futures for July delivery gained 1.75 cents, or 0.4 percent, to $4.2035 a pound at 10:34 a.m. on the Comex in New York. Earlier, the price touched $4.2095, the highest since May 4. The Comex was closed yesterday for a holiday.

Before today, the metal dropped 10 percent since touching a record $4.6575 on Feb. 15 partly on concern that global sovereign-debt woes and high U.S. unemployment would derail the global recovery.

Inspectors from the EU, the International Monetary Fund and the European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($158 billion) bailout in coming days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue package.

On the London Metal Exchange, three-month delivery copper rose $67, or 0.7 percent, to $9,266 a metric ton ($4.21 a pound).

Nickel, lead, aluminum and tin also gained in London. Zinc was little changed.

To contact the reporters on this story: Yi Tian in New York at ytian8@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

Copper Premiums in China Advance to Seven-Month High as Demand Recovers

Copper Premiums in China Advance to Seven-Month High as Demand Recovers

Copper premiums in China, the world’s largest consumer, climbed to a seven-month high this week as end-users boosted purchases following the metal’s decline to the lowest level this year.

Premiums paid by Chinese importers over the London cash price are being quoted as high as $120 a metric ton on a cost, insurance and freight basis to Shanghai, said Zhang Yu, an analyst at Yong’an Futures Co. That’s the highest level since October and compares with about $70 at the start of May, she said. Most deals are being done at $90 to $110 a ton, she said.

The rise in premiums shows that the market is tightening as demand improves, said Jia Zheng, a trader at Shanghai East Asia Futures Co. Shanghai prices have been trading at a discount to London since July, and that discount has narrowed this month, boosting the attractiveness of imported metal. Copper in Shanghai lost 1.7 percent this month, compared with a 2.4 percent drop in London.

“There have definitely been more people asking for metal in the past two weeks as prices dropped,” said Li Ye, an analyst at Minmetals Starfutures Co., a unit of China’s biggest metals trader. “While it’s still not profitable to sell imported copper, the loss is becoming smaller very quickly.”

Copper for three-month delivery on the London Metal Exchange slumped to $8,504.50 a ton on May 12, the lowest price since December, and traded at $9,108.25 a ton at 1:04 p.m. Singapore time today. Metal on the Shanghai Futures Exchange, which includes 17 percent value-added tax, was at 68,000 yuan ($10,478) a ton.

Immediate-delivery copper in Changjiang, Shanghai’s biggest cash market, traded at about 68,975 yuan yesterday.

Copper Backwardation

Near-term supplies of copper in China have been more expensive than longer-dated contracts since April, suggesting demand may be increasing. Spot copper in Changjiang was 895 yuan-a-ton more than futures prices yesterday. Inventories tallied by the Shanghai Futures Exchange declined to the lowest in more than seven months last week, a sign that demand may be picking up.

Stockpiles in the London Metal Exchange’s Asian warehouses are increasing at a slower rate, climbing 5.4 percent this month, compared with 18.5 percent last month, suggesting exports from China this month will fall from April’s record 44,595 tons, said Li. Chinese importers reroute metal to nearby warehouses when the price gap between London and Shanghai makes inbound shipments unprofitable.

Arbitrage trades, in which investors try to gain by exploiting price differences between commodities in different markets, were mostly profitable for copper in China in the six months through July 2010.

“China’s physical copper demand has improved recently,” Christian Schirmeister, executive director at JPMorgan’s global commodities group, said on May 24. Copper stockpiles in Shanghai bonded warehouses have been “drawn down modestly” after reaching as high as 750,000 tons last month, he said. Metal is stored in bonded zones before duties are paid and these holdings aren’t officially disclosed.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net

Steel output may fall as power cuts loom

Steel output may fall as power cuts loom

The production of crude steel in China may start to drop in June, after peaking in early May, because of an impending power shortage, industry analysts said.

Steel production reached a record of nearly 1.95 million tons in the first 10 days of May, according to the latest figures from the China Iron and Steel Association.

"Crude steel output still remained high at the beginning of May, but it will be affected by worsening power shortages," said Zhang Lin, a steel analyst from the Beijing-based Lange Steel Information Center.

"Steelmakers might continue to boost output so they will have enough stock when a power shortage comes in the summer," she said.

China is facing serious power shortages over the summer, with the State Grid Corp anticipating a capacity gap of 30 to 40 gigawatts.

Thousands of small mills will face the challenge of power shortages because the government will first guarantee electricity to residential users.

The government is limiting power supplies in southern China. Hunan Valin Steel Co Ltd and smaller mills reported output reductions because of local power shortages, according to Bloomberg News.

However, in northern China, Hebei Iron & Steel Group and Shandong Iron & Steel Group have not yet reported reduced output.

Last year's mandatory power cuts to meet energy-saving targets forced small steel producers in Hebei province to cut output or close mills.

Steel prices remained flat for a week, with rebar costing 4,940 yuan ($760) a ton on the Shanghai spot market, unchanged since May 17, according to the consultancy Mysteel.

Zhang said the electricity shortage will affect the whole industry chain including raw material producers, possibly pushing up the prices of raw materials and steel products.

Xicheng Steel increased its price for deformed steel bar by 20 yuan a ton on Monday, while Handan Steel increased its price by 30 yuan a ton.

Prices remained stagnant at most steel mills, however. The cost rises for steel products mainly involve construction plates, as the downstream of steel plates including the car industry remained sluggish.

The Indian steel producer JSW Steel Ltd said higher raw material prices are likely to keep margins under pressure during the quarter which started in June. Coking coal prices have increased to an average $330 a ton in March from $225 in January. Iron ore prices have risen by $50 a ton compared with last year.

Indian ore with an iron content of 63.5 percent was being offered at $183 to $186 a ton including freight on Thursday and Friday, the industry consultancy Umetal said.

According to data from the National Development and Reform Commission, Operating costs for Chinese steelmakers rose 17 percent to 30.1 billion yuan in the first quarter. The price of steel products increased 17 percent while the price of iron ore rose 40 percent, squeezing the companies' profits.

(China Daily, May 25, 2011)

COPPER ROUNDUP-Mine output drops in Q1, supply gap could widen

COPPER ROUNDUP-Mine output drops in Q1, supply gap could widen

By Chris Kelly
 NEW YORK, May 23 (Reuters) - Global copper mine production
hit speed bumps last quarter, interrupting a growth trend that
the copper industry counted on to meet strong global demand and
justify aggressive expansion plans.
 The drop in copper output from the world's biggest listed
mining companies in the first three months of 2011 could
temporarily exacerbate a supply deficit that contributed to the
rise in copper prices to record highs this year.
 After rising for three straight quarters, production from
the 11 biggest publicly listed miners fell by 8 percent in the
first three months of 2011, due to declining ore grades and
adverse weather conditions, data from companies showed last
month.
 One of the hardest hit miners in the group was Anglo
American (AAL.L: Quote). Anglo American's Collahuasi and Los Bronces
mines in Chile hit such roadblocks, resulting in a 14 percent
drop in first-quarter copper production from 2010 levels.
 The data lend support to the bullish argument that the
copper market will likely see a deepening deficit this year as
existing operations struggle while new projects are still a
year or two away from making a significant contribution.
 This view has helped support the price of the metal, which
is up more than 20 percent from the first-quarter of 2010.
 Copper rose to all time highs in February near $4.62 a lb
in New York and $10,000 per tonne in London.
 High prices left companies like Freeport McMoRan Copper &
Gold (FCX.N: Quote) looking flush enough to increase their exploration
budgets, in which case any copper deficit blow-out could be
short-lived as could some of the supply-driven strength in
prices.
 "Escondida was supposed to be down 10 percent year-on-year
due to ore grades, Freeport's Grasberg was down 17 percent, and
Collahuasi had problems due to heavy rains in January and
February," said Catherine Virga, senior base metals analyst
with CPM Group in New York.
 "This keeps the concentrate market fairly tight."
 Output from 11 of the world's largest miners, who together
produce about a tenth of the world's copper, fell to 1,8443,445
tonnes in the quarter, the lowest quarterly tally since the
first quarter of 2010 when output hit 1,812,040 tonnes.
 The figures exclude Chile's state-owned Codelco [CODEL.UL],
which accounts for around 11 percent of the world's mined
copper but reports its first-quarter production figures later
than other companies.
 Production in Chile, the world's largest producer of
copper, fell in the first quarter of this year relative to
last. [ID:nSGO002181]
  "With not a lot of capacity coming on stream, you're likely
to have a tight supply/demand pattern," said Rodman & Renshaw's
managing director Wayne Atwell, who has more than 35 years of
experience in the field of investment analysis for the metals
and mining industries.
 According to the International Copper Study Group (ICSG),
global mine capacity utilization rates fell for a third
straight month in January to stand at 77.8 percent.
 "Overall, 2011 will be a challenging year to see meaningful
growth from existing operations," said Terry Ortslan, a mining
analyst with TSO & Associates in Montreal, with over 30 years
of experience in the industry.
 Two operations -- a production restart at Grupo Mexico's
(GMEXICOB.MX: Quote) Cananea mine in Mexico and a ramp-up of
Antofagasta's (ANTO.L: Quote) Esperanza mine in Chile -- offer the
biggest boost to mine supply growth this year, but analysts do
not expect enough extra concentrate to alter the overall
trend.
 "It is difficult to really have an expectation that there
will be an improvement," said Nicholas Snowdon, analyst with
Barclays Capital in New York.
 "Apart from those two facilities, there are no other mines
that are ramping up, offering over 100,000 tonnes of fresh
output this year."
 PRICE INCENTIVE
 With benchmark prices of the metal CMCU3 sitting well
above the marginal cost of production, generally seen above the
$2 to $2.50 per lb range, more restarts, expansion projects and
new production ramp-ups should eventually boost mine capacity
rates.
 Still it will likely take until 2012 or later before any
supply-side impact would likely be felt.
 "The industry is trying quite hard to bring production up
because the profitability is so high with prices so strong, but
there is a limit to how quickly they can do that," Rodman &
Renshaw's Atwell said.
 Freeport, the world's second-largest producer behind
Chile's Codelco, raised its 2011 exploration budget to $225
million from the $200 million announced in January, in an
effort to move full steam ahead with expansion and restarts.
 About $1.3 billion of the capex budget will go primarily to
underground development of the Indonesian Grasberg copper mine,
construction activities at the Climax molybdenum mine in
Colorado and development of the El Abra sulfide deposit in
South America. [ID:nN20191756]
 With new copper production capacity set to come onstream in
North America and Australia in 2012 and 2013, Christine
Meilton, chief consultant at CRU, said the market could be in
surplus as early as 2013.
 Speaking to Reuters at the consultancy's World Wire and
Cable Conference in Amsterdam this week, she said, "Demand is
forecast to show much more steady growth which is why we see
the market moving from a deficit this year to surplus and then
deficit."
  (Reporting by Chris Kelly; Editing by Alden Bentley)

Copper May Climb on Rebound Speculation, According to Survey

Copper May Climb on Rebound Speculation, According to Survey

Copper may rise on speculation prices are set to rebound further after falling almost 10 percent in three weeks, a survey showed.

Ten of 16 analysts, investors and traders surveyed by Bloomberg, or 63 percent, said prices will gain next week. Five predicted a drop and one forecast little change. Copper for three-month delivery was up 2.1 percent for this week at $8,972 a metric ton by 4:15 p.m. yesterday on the London Metal Exchange after sliding 9.4 percent in the three weeks through May 13.

Goldman Sachs Group Inc. said May 16 copper presents a “buying opportunity” as demand in China maintains its pace. A day later, Macquarie Group Ltd. stopped advising investors to sell the metal. Natixis Commodity Markets Ltd. raised copper- price estimates for this year and next on May 18, citing “some signs” that demand is starting to build in China.

“Copper has bottomed for now and will see higher levels next week,” said William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “The funds have liquidated heavily and could begin to return to the long side. Demand still looks quite good to me. That’s really the key to any bull market.”

China is the world’s biggest consumer of copper, used in wiring, pipes and roofing.

The red bars on the attached chart are derived by subtracting bearish forecasts from bullish estimates, with readings below zero signaling the majority of respondents expect a decline. The green line shows the copper price. The survey data shown are as of May 13.

The weekly copper survey has forecast prices accurately in 67 of the past 137 weeks, or 49 percent of the time.

This week’s survey results: Bearish: 5 Bullish: 10 Hold: 1

To contact the reporter on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

U.S. aluminum premiums moderate but demand still 'robust'

U.S. aluminum premiums moderate but demand still 'robust'

By Allen Sykora
U.S. aluminum premiums have eased over the last week along with the strength of the front-end backwardation in the LME forward curve, in conjunction with “hefty” inventory deliveries into London Metal Exchange and Shanghai Futures Exchange warehouses in recent days, says Barclays Capital.

U.S. premiums are now reported around 8.75 to 9.5 cents a pound, which is moderation from 9-10 cents at the start of the month although still well above 6.2-6.6 cents at the start of the year, Barclays says.

However, European premiums remain at record levels and Barclays says broader aluminium demand remains “robust.” Meanwhile, Barclays cites market concerns that the severe flooding along the Mississippi River could disrupt activity at the five largest smelters in the U.S.

“While no disruption to production has occurred at any of the facilities, they all source their alumina from shipments along the waterway and are currently running down stocks until the flooding subsides or alternative delivery routes are achieved,” Barclays says.

By Allen Sykora of Kitco News; asykora@kitco.com
 

Copper price supported by output deficit -Aurubis

Copper price supported by output deficit -Aurubis

Mon May 16, 2011 10:37am GMT
 

HAMBURG May 16 (Reuters) - Global copper prices are likely to remain well-supported despite recent weakness with a global production deficit forecast in 2011, Aurubis (NAFG.DE: Quote), Europe's biggest copper producer, said on Monday.

"The market's good fundamental conditions are still in place," Aurubis said in a report. "For example, a production deficit is still expected on the market as a result of good demand and insufficient production."

Copper prices had touched five-month-lows on Thursday on concern economic growth is slowing in top world consumer China. [ID:nL3E7GC1CC]

Following a global refined copper deficit in 2010 estimated at 252,000 tonnes by the International Copper Study Group, a further deficit is likely in 2011, Aurubis said.

"There are uncertainties regarding the scale for 2011, however, mainly owing to the situation in China," Aurubis said.

Investors feared China's monetary tightening to cool inflation could reduce copper demand. But China's industrial production remains high, it said.

Shanghai copper futures have also been above London Metal Exchange prices recently which is "evidently a consequence of higher physical copper demand in China," it said.

Spot copper treatment and refining charges, fees paid to smelters by mines and traders to refine copper concentrate into new metal, have slipped slightly, Aurubis said.

Spot market TC/RCs have fallen slightly to about $100 a tonne and 10 cents/lb due to good demand from refineries, it said. When more refinery capacity is available, the fees fall.

Spot TC/RCs had risen to $120 a tonne and 12 cents a pound following the Japanese earthquake in March which damaged some Japanese smelters from $80 a tonne and 8 cents a pound before the disaster. [ID:nLDE74C0JX]

"The concentrate stocks at smelters are nevertheless high in the meantime and demand intensity may decrease again owing to scheduled maintenance standstills," it said.

On the copper scrap market the decline in the copper price led to a reduced supply, it said. Scrap refining charges also decreased.

But existing demand is still being faced by sufficient scrap availability, it said. (Reporting by Michael Hogan; Editing by William Hardy)

Copper Rises as Europe Economic Growth Fuels Demand Prospects

Copper Rises as Europe Economic Growth Fuels Demand Prospects

By Yi Tian and Agnieszka Troszkiewicz

May 13 (Bloomberg) — Copper rose for the fourth time in five days as Europe’s economy expanded faster than analysts forecast, enhancing prospects for raw-material demand.

Gross domestic product in the 17-member euro area gained 0.8 percent in the first quarter from the fourth, the European Union’s statistics office said today. That was the fastest pace since the second quarter of 2010. Economists forecast 0.6 percent growth, according to a Bloomberg News survey.

“Copper is a global play,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “As long as there is global growth, demand will be increasing.”

Copper futures for July delivery increased 1.3 cents, or 0.3 percent, to close at $3.9835 a pound at 1:10 p.m. on the Comex in New York. The price rose 0.2 percent this week. The metal has dropped 14 percent from a record $4.6575 on Feb. 15 on concern that China, the world’s biggest user, would seek to damp its economy to curb inflation.

The worldwide economic recovery “indicates sustainably high copper demand that cannot even be harmed by China’s restrictive interest-rate policy or the economic weakness of certain countries,” Aurubis AG, Europe’s biggest smelter, said today in a statement.

“The fundamental conditions that suggest a production deficit, and thus represent the basis for a high price level in 2011, are intact,” Hamburg-based Aurubis said.

On the London Metal Exchange, copper for delivery in three months climbed $58, or 0.7 percent, to $8,788 a metric ton ($3.99 a pound).

Zinc also rose in London. Aluminum, lead, nickel and tin fell.

–Editors: Patrick McKiernan, Steve Stroth

To contact the reporters on this story: Yi Tian in New York at ytian8@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

China’s Commodity Deals Dropping as Oil, Copper Prices Rise

China’s Commodity Deals Dropping as Oil, Copper Prices Rise

May 11, 2011, 5:03 AM EDT

(Updates with inflation data in ninth paragraph.)

May 11 (Bloomberg) — China, the world’s biggest user of natural resources, is pulling back from commodities and energy acquisitions as the rest of the world pursues deals at the fastest pace since the financial crisis.

China’s companies have spent $14.2 billion on acquisitions this year, down 30 percent from the same period last year, according to data compiled by Bloomberg. Worldwide the value of takeovers in the industry is $176 billion, the most at this time of the year since 2007. U.S. companies from Alpha Natural Resources Inc. to DuPont Co. are the largest buyers.

After China snapped up assets from a stake in Repsol YPF SA’s Brazilian unit to Ugandan fields from Tullow Oil Plc, political unrest in countries such as Egypt and Libya helped push up commodity prices this year. The rebound led Glencore International AG to offer shares this month in the year’s biggest initial public offering, which may value the commodity trader at about $61 billion.

“Faced with strict regulatory control over Chinese acquisitions in the U.S. and other countries, Chinese companies have been shifting targets,” said Guan Anping, a professor at the People’s University of China in Beijing and a former Chinese trade official. “The turmoil in North Africa and Middle East highlighted the risks of resources investment in the region. Chief executives of state-owned enterprises became very cautious.”

Lubrizol, Danisco

U.S. buyers lead acquisitions this year, with the biggest deal coming from Warren Buffett’s Berkshire Hathaway Inc.’s $9.2 billion takeover of lubricant maker Lubrizol Corp. Mine owner Massey Energy Co. agreed in January to an $8.3 billion buyout from Alpha Natural Resources Inc. DuPont last month raised its bid for Danish food-ingredients maker Danisco A/S to $6.4 billion.

Morgan Stanley has advised on 16 deals valued at $55 billion so far this year, the most among investment banks. Goldman Sachs Inc. comes second at $46 billion, and Credit Suisse has advised on $35 billion in transactions.

Most Expensive Deal

China lost the contest for Equinox Resources Ltd. last month, with Toronto-based Barrick Gold Corp.’s C$7.3 billion ($7.6 billion) bid trumping Minmetals Resources Ltd.’s C$6.3 billion offer.

The takeover was the most expensive copper mining acquisition, according to data compiled by Bloomberg. The battle came as China’s currency fell 2.8 percent against the Canadian dollar over the past six months. Against the euro, the yuan has dropped 3.2 percent in the same period.

U.S. Treasury Secretary Timothy F. Geithner said this week that China needs a stronger yuan to contain prices and spur domestic demand. His case was bolstered by official data out today showing that inflation in the fastest-growing major economy has exceeded Premier Wen Jiabao’s 4 percent target each month this year.

“China is still pursuing acquisitions, but they are not the only game in town anymore,” said Richard Horrocks-Taylor, head of mining investment banking at RBC Capital Markets in London. “Chinese acquirers have become more sophisticated and more thorough in their assessment before they make an offer.”

In mining, China had already retreated last year, making acquisitions worth $4.5 billion compared with $10 billion in 2009, according to Ernst & Young LLP.

Oil, Copper Prices

Valuations on mining and energy companies have gone up after crude oil jumped 43 percent in the past year to more than $110 a barrel in London and copper advanced 24 percent. The Standard & Poor’s GSCI Total Return Index of 24 commodities has beaten bonds, stocks and the dollar every month since December, the longest run in at least 14 years.

Baar, Switzerland-based Glencore’s IPO will set benchmarks for assets as it raises funds in London and Hong Kong, said Christine Tiscareno, an equity analyst at Standard & Poor’s.

“Prices are at the peak,” Tiscareno said. “China is very shrewd to take a back seat until they see what happens with Glencore. Even though they can afford to pay up and they need the resources, prices are likely to come down.”

Commodities tumbled last week on concern the global economy may slow. The S&P commodities index slid more than 10 percent, and crude oil declined more than 12 percent. Copper fell to the lowest price in almost five months last week on concern that higher interest rates will lead to slower growth and inflation.

China faces political opposition to some deals. Australia blocked a $2.8 billion bid by state-owned China Minmetals Corp. for OZ Minerals Ltd. in March 2009 on national security concerns. Australia also helped stymie Aluminum Corp. of China’s planned $19.5 billion investment in Rio Tinto Group.

Political Barriers

“Political barriers raised by Western countries have frustrated Chinese in overseas takeovers,” said Heng Kun, an analyst with Essence Securities Co. in Beijing. “But that’s unlikely to deter their expansion plans in the long run. China will continue to seek iron ore, oil, copper, uranium and minor metals that are in domestic short supplies.”

China will build 10 cities larger than New York by 2025 and will need to import more steel, iron ore, coal, aluminum and copper, Rio Tinto’s Chief Economist Vivek Tulpule said last year. The nation will almost triple its annual use of copper to 20 million tons in 25 years, according to CRU, a London-based metals and mining consulting company, prompting companies to seek control of mines oversees.

“China has a longer-term strategic imperative to secure sources of future supply for commodities,” said Ric Ronge, who helps manage the equivalent of $1.3 billion at Pengana Global Resources Fund in Melbourne. “They will keep buying.”

–With assistance from Brett Foley in London, Elisabeth Behrmann and Sarah McDonald and Garfield Reynolds in Sydney, Rebecca Keenan in Melbourne, Helen Yuan in Shanghai and Bloomberg News in Beijing. Editors: Stephen Cunningham, Will Kennedy.

To contact the reporter on this story:

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

Aluminium prices soar on long lead times

Aluminium prices soar on long lead times

 

Aluminium premiums shot to record highs this week in the US Midewest, closing in on the 10 cent-per-lb level, as lengthy lead times out of North American warehouses continued to choke off supply flows.

Spot prices paid over the London Metal Exchange (LME) climbed to an all-time peak at 9.5 to 9.75 cents per lb this week, up more than 45% since the start of the year.

That meteoric rise has been fuelled largely by increasingly strong domestic demand and a growing regional deficit in North America, where incentive-based finance deals continue to attract greater amounts of the metal into the warehouses.

Nowhere have these "deals" created more bottlenecks in the supply chain than in Detroit, where more than 1.1 million tonnes of the lightweight metal sit.

With warehouse incentives in Detroit creeping up toward $150 per tonne, producers have continued to follow the money trail, preferring to store metal away cheaply for an extended period of time.

"Right now the producers are very happy being able to deliver into an LME warehouse, get paid net cash … a very high incentive, and they don't have to deal with any credit risks," one East Coast physical dealer told Reuters.

"Even with the higher premiums and the higher LME price, none of these financing deals are being broken because these guys are in the business of financing metal, not playing in the physical market."

The end result of these "deals" has created a bottleneck in the supply chain, pushing lead times for delivery of newly issued warrants out as far as February 2012.

 

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