The LME’s proposed rules will take effect April 1 if they’re approved by the exchange’s board at a review in October.
“If the changes are adopted, we think the markets most impacted by these changes will be in already oversupplied aluminum and zinc,” Richardson of Morgan Stanley said. “Given the substantial amount of metal in these warehouses, the LME system would temporarily become a supplier and we expect increased availability of physical metal to exert downward pressure on the LME price.”
Aluminum for delivery in three months dropped 0.4% to $1,801.25 a ton by 3:02 p.m. on the LME. The metal fell 13% this year. Production will exceed demand for a seventh consecutive year, according to Morgan Stanley. Zinc fell 0.5% to $1,856 a ton, and is down 11% this year.
“Reported premiums in Europe and North America do appear to be softening, part of which can be explained by seasonal factors with the summer months traditionally slower, and part by stock holders choosing to reduce some of their positions on the basis of their expectations of the LME rule changes,” Steve Hodgson, director for sales and marketing at United Co. Rusal, said.
Moscow-based Rusal is the world’s biggest producer of aluminum. European producers of the metal used in beverage cans and cars will suffer the most from a drop in premiums, Barclays said Aug. 1. A $200 drop in premiums may cut aluminum output outside China by 600,000 tons within six months and by 1.8 million tons in a year, the bank said. Most cutbacks would occur in Western Europe, it said. Global aluminum production will be 50.5 million tons this year, Morgan Stanley says.
Goldman Sachs offered July 31 to speed up delivery of aluminum to users of the metal and proposed changes to industry rules. Consumers should have priority over other clients in getting aluminum out of LME warehouses, it said. Novelis Inc., a maker of aluminum parts for The Coca-Cola Co. and Ford Motor Co., said Goldman’s offer to speed up deliveries will provide “no benefit” to industrial users stuck paying higher premiums because of long delays.