Aluminium consumers should buy directly from producers and stop complaining about long queues at warehouses or the high cost of buying physical metal, according to the chief executive of Alcoa.
Consumers made the “dangerous assumption” that aluminum prices were going to fall, and this set them up for difficulties if they delayed purchasing metal, Klaus Kleinfeld told Metal Bulletin.
“What we believe we’re seeing is that many consumers reduced their amount of buying in the market because they assume the metal price is going to be lower, or even lower going forward. And then when it isn’t that way, we’re hearing people complaining about the queues and the warehouses, or high regional premiums,” Kleinfeld said.
He said consumers seeking metal could “come to Alcoa and cut a long-term deal with us”.
“You don’t need a warehouse in between and we’d be happy to deliver the metal to your doorstep. We’re open for business on that. Consumers don’t need to wait in a queue.”
Like many aluminium companies around the world, North American producers such as Alcoa and Canada-based Rio Tinto Alcan have found themselves in the unfortunate position of having excess material with no consumer outlet for it.
This is despite exercising producer discipline and taking the tough decision to cut output across their higher-cost operations.
Financing deals – aimed at locking away metal while demand was slack – then became viable, due to low interest rates and higher aluminium futures prices than cash prices, a situation called a contango.
Queues to access material grew as aluminium flowed into warehouses, with hotspots for delays including Metro International Trade Services’ Detroit sheds and Pacorini Metals’ facilities in Vlissingen, the Netherlands.
Kleinfeld said consumers are not the ones in the queues to get metal anyway.
“Where were consumers at the time when they could have bought metal cheaply? They’re not in the queues either. Where are they today? How many of those consumers are really out there and hedging their future metal?” he asked.