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Sources claim that Trafigura has flooded LME Malaysia with aluminium.

Three sources with knowledge of the matter said that Trafigura had delivered large quantities to London Metal Exchange-approved warehouses in Malaysia to take advantage of a financial agreement.

Sources said that they did not know the details of the deal, which could have been incentives or rent deals.

Trafigura has declined to comment.

On October 30, the LME-registered warehouses at Port Klang in Malaysia saw an increase of nearly 100,000 metric tonnes in their stock of aluminium. The total now stands at 366,850 tonnes.

Sources said that Trafigura had put the majority of this aluminum on LME warrants, which are title documents that confer ownership. Metal on LME warrant rent is much higher than metal stored in storage without warrant.

The companies that offer metal for rent do not need to own the metal. Instead, they receive a portion of the rent paid by new owners as long as the metal remains in the warehouse.

Aluminium rent is 56 cents per ton in Port Klang, or $56,000 a year for 100,000 tons.

Sources said Trafigura would also be able to benefit from incentives. If the metal is waiting to leave the warehouse, LME allows operators the option to charge for rent up to 80 days.

The incentive is calculated based on the free-on-truck rate (FOT), and the potential rent.

Incentives for owners of metals to place it on LME warrant rather than offer it to the market would need to be higher to reflect the supply, demand, and costs, including freight and taxes.

Typically, consumers buy metal in contracts that include both the physical market premium and the LME benchmark. If they are short on metal, they can also purchase it from the physical market. (Reporting and editing by Alexander Smith; Pratima Deai)

(source: Reuters)