2. LME QUEUES The LME aluminium stock-build slowed sharply in  market storage on long term deals. The economic     peak, some estimates put global aluminium stocks  material were pixelated out on Google Earth.


 stocks at Detroit and Vlissingen, and the right scale shows Detroit and Vlissingen as a percentage of  stocks at the height of the queues. Including Rotterdam, which was taking a lot of aluminium from Vlissingen, warehouse companies at these three   warehouse incentive to attract metal.


Quantitative Easing restored economic demand  warehouses in the US and Europe, but delivery rates were limited by maximum LME out-rates and queues built up as metal waited to leave.


It’s much easier to put metal on warrant (i.e. in warehouse) than take it out, especially after the electronic SWORD system replaced paper bearer  Mt “deliveries” in one day.


 day per sheddepending on tonnage in warehouse. Warehouses explain that metal delivered out depends on random warrant allocations through clearing, so parcels can be scattered all over the  access particular lots.


Whether by design or accident, LME warehouses with loadout queues realised that they could pay an incentive to attract new metal (equal to the LME rent over the length of their queue plus their FOT costs,  they were guaranteed to earn this incentive back because new metal couldn’t leave until the end of the queue.


Source: Reuters/LME


Banks and traders snapped up sleepy warehouse  


As queues grew, the warehouse incentive exceeded the spot physical premium paid by consumers, allowing warehouses to win new metal direct from


9 | ADMISI - The Ghost In The Machine | July/August 2018


producers. The warehouse incentive became the proxy for the spot physical aluminium market, used to price sales by producers and traders, and the calculation was backed up by LME rules.


Asia didn’t have a warehouse queue and Asian  once US and European premiums could attract Asian metal, Asian premiums also shot higher.


This mechanism became a victim of its own success, because the warehouse with the longest queue could always bid most for spot metal, and stocks and 


Historically, US mid-west premiums had ranged   


 impact an oversupplied market was having on price, but consumers faced stark choices when buying metal, and couldn’t escape the warehouse incentive. Consumers could:


a. Buy metal from a physical trader at the spot premium / warehouse incentive


b. Buy direct from producers, who could also sell directly at the warehouse incentive


c. Pick up LME warrants which were always at 


Unhappy consumers voiced concerns during LME  


Chart 2


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