Written Commentary
LME Aluminium Stocks and Klang:
Last week’s announcement of a COVID-19 shutdown in several Malaysian regions including Klang, their busiest port, which got the LME pretty excited and caused a spike in nearby aluminium spreads.
The chart (Source: LME /Reuters/ADMISI) shows LME Aluminium daily curves on 7th, 8th, 9th and 14th Oct, together with the intra-day spreads on 8th Oct and 14th Oct.
Basis PM vals, the nearby backwardation was most pronounced on Thursday 8th, feeding into Friday morning with Tom-Next trading out to $9 back.
Later on Friday the Malaysian Govt announced that the COVID measures would not impact economic activity at the port, and spreads eased off by Friday’s close.
The market’s faith in their ability to keep the port running was repaid this week, with stock figures showing net aluminium outages at Klang of 2500mt/day to 6300mt/day so far.
Klang has been the feature location for aluminium stocks since heavy cancelations in early 2019 started a modest warehouse queue at a level economic under the LME’s Queue Based Rent Capping (QBRC).
The chart shows LME Aluminium Total Stocks, and Klang Aluminium Total and Klang Cancelled Aluminium
Since 2019, Klang has held 40%-63% of total LME aluminium stock and has seen up to 76% of cancelled LME aluminium stock.
The Klang queue is very modest compared to the >2yr queues seen at Detroit and Vlissingen in 2013-2014, before the LME introduced the QBRC.
Under the QBRC, the allowable rent was 40days (30days full rent and 20days half rent), but a scale up relaxation of the QBRC for 2020 was announced in 2019, with maximum chargeable rent being 50 days from Feb 2020, 60 days from May 2020, 70 days from Aug 2020 and 80 days from Nov 2020.
The calculations have changed since aluminium queues were really large but, with Klang holding 875kmt, the average minimum loadout should be 3500mt per working day (for 600-900kmt warehouse stock), suggesting an 80 calendar day queue is approx. 200kmt canx.
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