Column: A last swing of the LME aluminum stocks roundabout?

The aluminum market has just seen another big stocks rotation with 156,000 metric tons of metal flowing into London Metal Exchange warehouses over the last six weeks.

But it’s starting to look like the endgame of the stocks battle that has characterized LME aluminum trading for over a year.

Financiers, traders and warehouses are tussling over a diminishing volume of metal. Just about all the aluminum just delivered onto LME warrant was drawn down from existing LME off-warrant stocks in the same Malaysian location.

The Port Klang stocks shuffle has had little impact on the bigger inventory picture. Total LME stocks, both registered and off-warrant, are still down by almost 300,000 metric tons from the start of the year at 717,000 tons.

The absence of significant fresh deliveries in the most recent inventory churn helps explain why LME time spreads have failed to loosen despite the run of apparent “arrivals” showing up in the exchange’s daily inventory reports.

It also offers a clue as to why LME-registered storage capacity at Port Klang has been steadily shrinking.

Port Klang roundabout

The aluminum stocks battle has been raging since May 2024, when 650,000 tons of metal were dumped into LME warehouses in Port Klang.

The seller, reportedly trade house Trafigura, could earn more money from a rent-sharing deal with an LME warehousing company, in this case ISTIM UK Ltd, than any physical sale in an oversupplied market.

The good news for the buyers was that this was Indian and not Russian metal, which had just been placed under US and UK sanctions. The bad news was that the only way of breaking the pre-negotiated storage deal was to cancel the metal and transfer it to another warehouse operator.

The subsequent rush to move aluminum generated a load-out queue reminiscent of those that plagued the LME in the 2010s.

The queue at ISTIM’s Port Klang warehouses stretched to 293 days at its peak in August 2024 and only disappeared in May this year.

The latest stocks churn, occasioned by a squeeze on short-position holders in April-May, has ended back in ISTIM warehouses.

But the volume is much reduced from last year and largely comprises Indian metal returning from off-warrant storage. Total stocks at Port Klang are up by just 41,000 tons since the end of May, despite the daily noise of the LME’s stock reports.

ISTIM doesn’t seem to be expecting much more any time soon. The company has reduced the number of exchange-listed warehouse units in the Malaysian port from 22 to 13 over the last year.

Although other operators have increased their presence, total LME storage capacity in Port Klang has shrunk by 15% since the start of 2025 and is half what it was in 2021, when ISTIM was storing over 800,000 tons of warranted aluminum.

All change, no change

LME time spreads have barely reacted to the daily warranting action. The benchmark cash-to-three-month period continues to trade either side of level, unchanged from where it was two months ago.

That’s because nothing much has changed in the bigger scheme of things. Total LME inventory, both registered and off-warrant, rose by a modest 36,500 tons over June and July, barely denting a downtrend that has been running since May last year.

Stocks continue to hover around three-year lows, and it’s evidently going to take a bigger cash premium to halt the steady erosion of what was once an inventory mountain.

The lack of fresh inflow may be down to the greater opportunities in a physical market that is adjusting both to a European phase-out of Russian imports and the hike in US import tariffs to 50%.

Regional premiums are diverging, and physical arbitrage offers more lucrative options than LME storage, particularly since warehouse operators such as ISTIM now lack the huge storage revenues that allow them to compete for fresh metal with physical buyers.

It’s also possible that there is simply not much freely available aluminum to fight over as China steps up imports. The country sucked in 1.25 million tons of primary metal, mostly Russian, in the first half of the year, with the pace of arrival accelerating further in July.

Whatever the reason, the LME warehouse roundabout is losing momentum and will continue doing so until operators can draw more metal out of the physical supply chain.

(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)

(Editing by Rod Nickel)