Aluminum Market Shock: One Party Controls 90% of LME Inventories

Recent reports indicate that a single entity has gained control of up to 90% of the available aluminum inventories on the London Metal Exchange (LME), valued at approximately $505 million. This unprecedented concentration of inventory has raised concerns about market stability and potential shortages in the aluminum supply chain.

Key Takeaways

• Up to 90% of LME aluminum inventories are controlled by one party.
• Total LME aluminum stocks stand at 535,900 tons, with 208,400 tons available for immediate shipment.
• The concentration of inventory has led to a significant increase in aluminum prices, reaching $2,736 per ton.
• Recent cancellations of aluminum in LME warehouses suggest a tightening market.

Inventory Control and Market Implications

The LME does not disclose the identities of parties holding large positions, but analysts speculate that this concentration is likely due to a physical trader seeking to fulfill commitments amid looming shortages. Alastair Munro, a senior base metals strategist, noted that the recent trend of cancellations—totaling 32,175 metric tons in just one week—indicates a tightening market.

The LME's positioning data reveals that between 80% and 90% of available aluminum inventories are held by this single party as of February 20. This situation is particularly concerning given that total LME stocks have halved since May of the previous year, suggesting a significant shift in market dynamics.

Price Surge and Market Reactions

The concentration of aluminum inventories has had a direct impact on pricing. Benchmark LME three-month aluminum prices recently hit their highest level in nearly nine months, driven by the European Union's decision to ban Russian primary aluminum imports. The cash price premium over the benchmark contract surged to $38 per ton, indicating a potential shortage of near-term inventories.

Broader Market Context

The aluminum market is not the only one experiencing significant shifts. LME data also indicated that a similar concentration exists in zinc inventories, with 80% to 90% controlled by one party. However, unlike aluminum, the zinc market is expected to see a recovery in mine supply, leading analysts to forecast a global surplus this year.

Conclusion

The current situation in the aluminum market highlights the risks associated with inventory concentration and the potential for price volatility. As the market adjusts to these developments, stakeholders will need to monitor the situation closely to navigate the challenges posed by this unprecedented control of LME aluminum inventories.

Sources

• Up to 90% of LME aluminum inventories controlled by one party | Kitco News, KITCO.