Trafigura Group has bought up significant volumes of aluminum on the London Metal Exchange, making it a key player in a historic squeeze as inventories of the metal plunge.
Trafigura, one of the largest aluminum traders, has built up a significant long position in the LME aluminum market as it seeks metal that could be sold at a profit in China, according to people familiar with the matter, who asked not to be identified describing private information.
LME data show several large holders of long positions in short-dated aluminum contracts ahead of the expiry next Wednesday of the main contract for November.
While the positions aren’t big in absolute terms by historical standards, they are significant as a proportion of the available inventory on the LME. The positions in the November contract identified in the LME’s data are collectively larger than the entire 226,350 tons of exchange stocks, which are at the lowest since 1990.
The large positions have combined with dwindling aluminum inventories on the LME to help drive the market into the steepest backwardation in decades this week, with prompt contracts trading far above later-dated futures. Spreads eased slightly on Thursday but remain sharply elevated.
A spokesperson for Trafigura declined to comment.
“The LME has a number of arrangements in place to guard against any undue influence of large or dominant positions,” the exchange said in response to questions about the large aluminum positions earlier this week. “The LME also routinely requests further position management information from market participants and has the power to require positions to be managed as appropriate.”
LME Aluminum Market Faces Biggest Supply Squeeze in Decades
Trafigura’s move comes as the Chinese aluminum market is undergoing a major squeeze of its own. Chinese aluminum inventories have fallen sharply in recent months, and December delivery Shanghai Futures Exchange aluminum contracts closed 550 yuan a ton above contracts for delivery in January — the steepest backwardation for a front-month contract since 2002.
Over recent weeks, that market dynamic has opened an arbitrage opportunity for traders like Trafigura to buy aluminum on the LME and deliver it to China.
One potential complication is that the entirety of the LME’s aluminum inventory is of Russian origin, which is generally seen as the least valuable metal in the market since the Russian invasion of Ukraine and western sanctions prompted some banks and traders to step back from handling it. Nonetheless, Russian aluminum remains widely accepted in the Chinese market.
China has helped the world absorb the deficit caused by disruptions to supplies from the Middle East, by stepping up exports and reducing imports, and so drawing down stocks, according to an email to clients from Goldman Sachs Group Inc.’s metals sales desk, seen by Bloomberg News. The Goldman team “struggle to see spreads easing when China and LME are both competing for metal,” according to the email.
This article was generated from an automated news agency feed without modifications to text.
