Aluminum Waiting Times May Lengthen in Malaysia as Orders Jump

(Bloomberg)--Obtaining aluminum from London Metal Exchange warehouses in Johor, Malaysia, may take longer after orders to draw the metal from local stocks jumped to the highest level in more than seven years.

Orders to draw aluminum from Johor warehouses, known as canceled warrants, jumped 19,350 metric tons, or 33 percent, to 78,350 tons, the highest level since at least July 2004, exchange data showed today. That's the second increase in four sessions after bookings climbed 32 percent on Aug. 12.

The number of canceled warrants for all metals at the location is now 103,000 tons. At the minimum daily delivery rate of 1,500 tons set by the LME, removing any metal from LME warehouses in Johor may take as much as 14 weeks, according to Duncan Hobbs, an analyst at Macquarie Group Ltd. in London.

"People have been waiting for metal in some cases a little longer than they would have hoped," Hobbs said. "But clearly, the queuing situation is not as critical there as in Detroit." It takes about seven months to withdraw metal from LME warehouses in Detroit, home to 25 percent of total aluminum stockpiles, Harbor Intelligence estimated in July.

Canceled warrants for aluminum in Johor more than quadrupled in July. Johor is home to 273,700 tons of aluminum stockpiles. Local inventories have fallen 13 percent since peaking on June 3.

The bookings at Johor are linked to "repositioning of metal, not any sudden spike in demand," according to Hobbs. Owners of LME warrants may be moving metal from one warehouse location to another, or placing it in warehouses not approved by the LME to benefit from lower rent, the analyst said.

Demand Anticipation
Orders may also be placed in anticipation of stronger demand for aluminum. Metal is being moved to non-LME storage "so that the parties carrying the metal can more easily sell it and realize the premiums," Hobbs said. "Whereas if metal is on warrant, it could get caught up in a queue."

A warrant is a document entitling the holder to take possession of a specified quantity of metal at a particular LME- approved warehouse. When canceling a warrant, the owner takes delivery of metal from a specific warehouse location.

Total orders to draw aluminum from LME warehouses surged 13,075 tons, or 4.4 percent, to 312,425 tons. Aluminum stockpiles declined 7,100 tons to 4.57 million tons.