Large LME Al and Zn Inventories May Released by Funds

Large inventories of primary aluminium and electrolytic zinc may be released soon from warehouses designated by London Metal Exchange (LME). Financial institutes and hedge funds in the U.S.A. and Europe are holding ingot inventories on long-term contracts with warehouse companies along their monetary dealings to take profit from the gap between spot price and future price. Recently the price gap is narrowing. The inventory holders may release large quantity of ingot when their warehousing contracts become expired.

LME primary aluminium inventory was about 4.294 million tonnes as of December 15, which was as much as worldwide 40-day consumption and kept the record high level. Electrolytic zinc inventory was around 700,000 tonnes on December 15, as much as global 20-day consumption and the highest level in recent 6 years.

However, global supply and demand balance is not easy for both primary aluminium and electrolytic zinc. High inventory is caused by monetary dealing called Finance Deal. This dealing collateralizes ingot stocked in warehouses, including LME designating warehouses. It is said that more than a half of LME aluminium inventory or 70% of LME zinc inventory in the U.S.A. is collateralized for the dealing.