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UPDATE 2-Bank deals have led to aluminium surcharges -BMW
May 27, 2011 / 12:08 PM / in 6 years

UPDATE 2-Bank deals have led to aluminium surcharges -BMW

* Aluminium supply decreased, premiums jumped

* BMW hedges using OTC contracts

(Adds more details)

By Pratima Desai

LONDON, May 27 (Reuters) - Bank financing deals which have tied up large amounts of aluminium in London Metal Exchange warehouses has led some suppliers to impose surcharges, German luxury carmaker BMW (BMWG.DE) said on Friday.

Metal industry sources estimate these deals have tied up a hefty 70 percent or 3.3 million tonnes of record high aluminium stocks -- 4.7 million tonnes in LME-registered warehouses.

Frank Wienstroth, who overseas communications on the supply chain and sustainability said BMW was aware of the bank deals, “although it does not impact our hedging decisions”.

“We have noticed a slight trend towards more limited availability,” he said in an emailed response to a question from Reuters about whether the bank financing deals made it more difficult to get aluminium.

“At the same time that availability was decreasing, there was also an increase in pure aluminium premiums, which in some cases led suppliers to impose surcharges.”

The world’s largest premium car maker said it was able to counteract potential negative affects by planning ahead, but gave no further detail.

A typical financing deal consists of buying nearby aluminium from a producer, selling it forward at a profit and striking a warehouse deal to store it cheaply for an extended time period.

Lack of availability pushed premiums paid for duty-paid physical aluminium AL-WDP in Europe to record highs of $210-$240 a tonne over LME cash prices CMAL0, the highest since Reuters records began in 1998. [ID:nLDE74F1FP]

Difficulty in accessing LME aluminium is also part of the reason why prices of the benchmark three-month contract CMAL3 rose to above $2,800 a tonne, the highest since August 2008.

“The aluminium prices published by the LME provide the price basis for sourcing physical aluminium in the form of alloys and alloy content in components,” Wienstroth said. “Hedging is achieved through (over-the-counter) contracts.”

BMW declined to say how much aluminium it used last year, but it expects to need 20 percent more this year.

To help reduce vehicle weight aluminium is becoming more important for German auto maker BMW (BMWG.DE) and its use of the metal has grown steadily in recent years. [ID:nLDE6731GB]

Car makers around the world are on a mission to reduce the weight of cars to promote fuel efficiency and aluminium fits the bill as it is lighter than steel and sustainable because it can be recycled.

Most analysts expect double-digit auto sales growth in 2011 and further gains in 2012. [nCARS1]

BMW, which also owns the Rolls-Royce and Mini brands, outshone rivals with a sharp increase in first quarter sales, fuelled by demand China and the United States. [ID:nLDE7430BO] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic of US light vehicle sales for April

r.reuters.com/syv39r

China surpasses U.S. link.reuters.com/gar98r

China car sales link.reuters.com/cex88r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Editing by Eric Onstad

Our Standards:The Thomson Reuters Trust Principles.
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