Aluminium warehouse changes threaten caustic soda sales

Futures trading

SHARE THIS STORY

Aluminium Jul13

Strong aluminium markets have provided great support to caustic soda producers in recent years.  PVC and construction markets have been weak, but volumes into aluminium mining have kept prices and overall chloralkali margins strong.

Now this may be about to change.  As the blog noted in March, aluminium prices have been supported by the behaviour of the warehouse owners associated with the London Metals Exchange (LME).  According to the Financial Times, companies such as Goldman Sachs and JP Morgan have made large profits by taking advantage of a loophole in the LME’s rules:

“In the past two years, warehouses have sucked up stocks of aluminium, copper and zinc. These so-called “warehouse wars” have helped to drive up physical premiums – the cost of metal over and above the LME benchmark – to record levels, creating a disconnect between the LME price and the physical market and leading metal users from Coca-Cola to General Motors to voice their dissatisfaction.”

Now the new Hong Kong owners of the LME are talking about changing the rules.  If they succeed, which looks likely, the market will soon be very different:

  • Total LME stocks are now at an all-time record of 7.7 MT, versus a normal level of 1.5 MT at the start of 2008
  • This stockbuild has caused mines and aluminium smelters to keep operating, in defiance of market reality

In turn, this has kept perceived demand strong for caustic soda strong, as the smelters operated to fill the warehouses.

What will happen next?  It seems that Goldman and JP Morgan have decided to exit the warehouse business.  The blog therefore fears its forecast from March may soon now come true, “when the party does eventually come to an end, companies (including chloralkali producers) will suffer major losses on inventory values. Whilst operating rates may well crash until the stock overhang is worked down.”

PREVIOUS POST

Nissan launches low-cost Datsun range, as H1 global auto sales growth falls to 4%

17/07/2013

Global auto demand growth is slowing fast.  H1 data for the 5 key markets of C...

Learn more
NEXT POST

"Is the West more closely resembling Japan?"

20/07/2013

Gradually the world’s major investors are recognising that demographics are a ...

Learn more
More posts
Futures markets, US shale, the big winners from OPEC meeting
07/12/2016

There were only two winners from the past 3 months of OPEC’s “Will they?, Won’t th...

Read
China has burst the commodities superbubble
30/09/2015

China’s New Normal policies are taking global commodity markets in a new direction, as I descr...

Read
Oil markets begin to slide as Great Unwinding resumes
07/07/2015

Oil prices have fallen around $5/bbl, since my suggestion last week that a “New oil price fall...

Read
Markets pause for breath as oil traders enjoy upstream volatility
16/02/2015

There are some signs of a recovery in some markets, but the overall picture is still very quiet for ...

Read
Oil prices jump 20% in 2 days in SuperBowl weekend coup
09/02/2015

An astonishing coup appears to have begun 10 days ago, in the last 45 minutes of trading in US oil ...

Read
August highlights
04/09/2014

Many readers have been taking a well-earned break over the past few weeks.   As usual, therefore, ...

Read
Oil prices break out of their triangle – downwards
27/08/2014

The Great Unwinding of the central banks stimulus policies is underway, as discussed last week.  Oi...

Read
US oil inventories hit record high as supply increases
30/04/2014

Imagine that 5 years ago, you had been asked by your Board to forecast future oil prices.  And supp...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more