Trafigura floods LME Malaysia warehouses with aluminium, sources say

By Pratima Desai

LONDON (Reuters) -Trafigura delivered large quantities of aluminium to London Metal Exchange approved warehouses in Malaysia last week to benefit from a financial deal, three sources familiar with the matter told Reuters.

Details of the deal involving the Swiss-based commodity trader, which could be incentives or so-called rent deals, were not known, the sources added.

Trafigura declined to comment.

Aluminium stocks jumped nearly 100,000 metric tons in LME registered warehouses in Port Klang, Malaysia on October 30 taking the total to 366,850 tons.

The sources said most of this aluminium was put on LME warrant, a title document conferring ownership, by Trafigura. Rent for metal on LME warrant is significantly higher than metal in storage that is not on warrant.

Companies that deliver for rent deals do not have to retain ownership of the metal, but they get a share of the rent, paid by the new owners for as long as it remains in that warehouse.

For aluminium, daily rent in Port Klang is 56 cents a ton, which would amount to a total of $56,000 a day for 100,000 tons.

Trafigura could also benefit from incentives, the sources said, because if the metal is in a queue to leave a warehouse, the LME allows operators to charge rent for 80 days.

Incentives are paid per ton of metal going on LME warrant and are calculated using free-on-truck (FOT) rates and the rent that could be earned.

For owners of metal to put it on LME warrant instead of offering it to the market, incentives would have to be higher than the physical premium to reflect supply, demand and costs including for freight and taxes.

Consumers typically buy metal on contracts priced to include the physical market premium plus the LME benchmark price. They also buy on the physical market if they run short of metal.

(Reporting by Pratima Desai; editing by Alexander Smith)