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GER - BMW blames speculators as aluminum costs rise

Deals by banks and other financial institutions have tied up so much aluminum in warehouses across the world that BMW had been forced to pay a surcharge for metal to use in its manufacturing operations.

Mr Frank Wienstroth spokesman for BMW on purchasing, suppliers and logistics said that he was aware of talk that financing deals had tied up more than 70% of aluminum stocks in London Metals Exchange warehouses and this had led to limited availability of aluminum for BMW.

Mr Wienstroth said that at the same time that availability was decreasing, there was also an increase in pure aluminum premiums which in some cases led suppliers to impose surcharges.

BMW is the latest in a line of companies to highlight the impact speculators were having on prices of basic materials such as food and metals.

Mr Howard Schultz ECO of Starbucks recently lashed out at hedge funds, index funds and other ways to manipulate the market. He said that the doubling in price of Arabica coffee beans was the result of extreme speculation and not a result of normal market forces.

Carlsberg has also called for a crackdown on hedge funds and other speculators, warning that the world's biggest brewers could have to hold spare capital to cope with commodity price volatility.

Mr Jorgen Buhl Rasmussen said in January that activity by some hedge funds was value destructive and that regulators should look at imposing controls on a global basis. He warned that such a move would however be close to impossible.

Stocks of aluminum in LME warehouses are sitting close to record highs, having risen by about 10pc since the start of January to about 4.7 million tonnes. However, this massive increase in supply which some have put down to the collapse of the US car industry has not had a significant impact on aluminum pricing because of the number deals that have kept the metal warehoused.

Mr Chris Evans spokesman for the LME said that there were many reasons why third parties would wish store metal in LME approved warehouses. It might be because the owner has taken out a futures position and is storing the metal until they have to deliver it to meet their obligations or the metal may be collateralized and used as security for a company’s loan.

Deals from speculators such as hedge funds and investment banks increase when there are expectations that prices will rise in the future. Typically, banks buy aluminum from a producer for delivery immediately and sell it on a forward contract at a profit. The metal is then stored in warehouses around the globe until the contract eventually expires.

The price of aluminum for 3 month delivery on the LME has risen by almost a quarter over the last year to USD 2,562 per tonne and doubled since March 2009, although it has been sliding for the last few weeks. The price has risen in loose correlation with the oil price because the smelting process used in the production of aluminum is extremely energy intensive. Typically, energy prices account for 36pc of total aluminum production costs and speculators have been counting on rising fuel prices boosting the price of the metal.

Source: telegraph.co.uk

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