When you sit down for a cold beer, you probably don’t think of all of the factors that culminated to create the product. What’s more, you probably never consider the fact that the London Metal Exchange (LME) could have such a marked impact on the frosty beverage. But traders utilizing the LME to purchase aluminum for beer cans have recently reiterated issues that the exchange is causing, putting beer prices in a pinch [for more aluminum news and analysis subscribe to our free newsletter].
The LME and Beer
While it may seem like a far-fetched relationship on paper, the LME’s practices are hurting beer prices according to producers. The biggest complaint against the exchange is that it has not done enough to ease supply bottlenecks that its warehouse system creates. These bottlenecks created extra costs for buyers that “surpassed $200 a metric ton last year, as the wait to secure metal from LME-licensed warehouses stretched to a year or more in some locations” writes Tatyana Shumsky.
The Beer Institute, which represents 93% of the beer sold in the U.S., wrote a letter to the LME late last year to express concerns that brewers were not receiving aluminum in a timely manner or at fair prices. That all translates to higher costs for consumers looking to enjoy their favorite beer [see also The 5 Minute Guide To Aluminum ETFs].
How Bad Is It?
While the LME has commented that it is aware of the issue and is looking to resolve it, so far the outlook has been weak. As of mid-way through this month, an LME Detroit warehouse contained 1.4 million metric tons with just over 1 million tons already purchased and slated to leave the facility. With a minimum delivery rate of just 3,000 tons a day, it would take 337 business days just to ship the aluminum that has been purchased and is set to leave.
The LME initiated new rules in April of this year to try and and expedite these processes, but traders have said that there has been no promising result. The LME currently holds stockpiles of 5.3 million metric tons across all of their warehouses, a new record for the institution.
Disclosure: No positions at time of writing.