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LME aluminium stocks have nosedived by half over the past two years, signaling tighter market conditions and setting alarms for traders worldwide.
What does this mean?
The London Metal Exchange (LME) aluminium scenario is a chess game of supply and demand intricacies. With inventory levels at the LME plummeting to their lowest since 2022, stable prices around $2,500 per ton mask an underlying volatility. The dynamics are exacerbated by geopolitical shifts, particularly the LME’s April 2024 ban on new Russian aluminium deliveries. This, alongside the ‘tom-next’ spread’s backwardation, reflects the market’s turbulent state. Nearly two-thirds of LME-held aluminium is Russian, less preferred due to bans and quotas in the US, UK, and Europe. Meanwhile, traders hold substantial long positions, influencing spread structures as the market grapples with supply complexities.
Aluminium’s global trade faces a tangled web of geopolitical factors and market strategies. China’s ramp-up of Russian aluminium imports — surging from 291,000 tons in 2021 to a staggering 1.13 million in 2024 — reflects its burgeoning demand, driven largely by the solar sector. As Chinese smelters brush against capacity caps and Shanghai Futures Exchange stocks dwindle, market players need to navigate this new normal. This shifting landscape suggests cautious optimism and calculated maneuvers in trading strategies.
The bigger picture: Unraveling the threads of metal trade.
The ongoing squeeze in LME aluminium stocks serves as a bellwether for potential long-term supply constraints, not just short-term blips. Complicating the matter are China’s struggles with its secondary production policy amid US tariff-exempt scrap flows, and the looming threat of EU export tariffs disrupting scrap supply. The situation sheds light on the broader complexities of the metal trade, reminding businesses to brace for geopolitical shifts and regulatory changes that could reshape the market landscape.
