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Aluminium prices face a dampening prospect as the global economic slowdown could force banks to liquidate their metal holdings in a bid to fund other purposes.

20 Oct 2011

NEW YORK (Commodity Online): Aluminium prices face a dampening prospect as the global economic slowdown could force banks to liquidate their metal holdings in a bid to fund other purposes.

Bank financing deals are believed to have tied up 70% of more than 4.5 million tonnes of aluminium held at LME approved warehouses. In a bank financing deal, banks buy aluminium, sells it forward and stores it in a warehouse for long periods.

Since the metal was locked away, the premiums for aluminium in Rotterdam last week was $185-$205. This is down from $200-$230 premiums of August.

With the global economic outlook looking negative, the Euro zone crisis worsening and the US slowing, these banks may have to sell of the metal in the event of a situation of liquidity crunch. As such, there is a very strong possibility that such an action will cause weakening prices.

At the London Metal Exchange (LME), aluminium has fallen around 20% since its May high.


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