Macro

LME Alum Queue Surges with 183,975T Jump, Trafigura Eyes Drop

LME faces renewed warehouse queues with a 183,975-ton surge in aluminum orders, amid Trafigura's forecast of a 6% price drop.

By Mackenzie Crow

5/16, 09:10 EDT
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Key Takeaway

  • LME faces renewed warehouse queues as aluminum withdrawal orders surge by 183,975 tons, largely in Port Klang, Malaysia.
  • Trafigura Group's significant aluminum deliveries to Port Klang contribute to the backlog.
  • LME's rules aim to disincentivize long queues and limit rent profits from stored metal.

Aluminum Stockpile Surge Sparks Concern

The London Metal Exchange (LME) is facing renewed challenges with the return of warehouse queues, a longstanding issue that complicates metal delivery processes. Recent orders have significantly increased the demand to withdraw aluminum from LME warehouses, with a notable jump of 183,975 tons following a 100,325-ton increase the previous day. The bulk of these withdrawals is concentrated in Port Klang, Malaysia, where a staggering 352,875 tons of aluminum is now queued for delivery. This surge in cancellations and deliveries, primarily driven by Trafigura Group, has reignited concerns over the efficiency of the LME's warehousing system and its impact on market dynamics.

Warehouse Queues Under Scrutiny

The phenomenon of warehouse queues, where large volumes of metal are slowly released into the market, has been a contentious issue for the LME. These delays are often exacerbated by "rent share" deals between traders and warehousing companies, which financially benefit from prolonged storage times. In response to past criticisms and regulatory scrutiny, the LME implemented rules to limit the profitability of such arrangements and discourage the formation of queues. Despite these measures, the recent spike in aluminum stockpiles at Port Klang suggests that challenges persist in balancing warehouse operations with market demands.

Trafigura Forecasts Aluminum Price Drop

Amidst these logistical challenges, Trafigura Group, a key player in the aluminum market, has projected a 6% decrease in aluminum prices over the next six months. This prediction is grounded in an anticipated resurgence of supply coupled with subdued demand due to high interest rates affecting manufacturing sectors. Henry Van, a metals analyst at Trafigura, highlighted the current rally in aluminum prices as "fundamentally overdone" at the CRU World Aluminum Conference in London. With three-month aluminum futures already up 8% this year, Trafigura expects a correction, with prices returning to the $2,100 to $2,400 per ton range, reflecting weaker consumption patterns, particularly outside China.

Market Adjustments and Global Trends

The anticipated adjustment in aluminum prices is part of a broader trend affecting the metals market. As smelters react to current price levels by restarting curtailed production, the market is likely to see an increase in supply. This shift is evidenced by Trafigura's significant contribution to the doubling of LME aluminum stock levels in a short period, reaching the highest point since 2021. Meanwhile, other metals like copper, zinc, nickel, and tin are experiencing their own unique market movements, with copper prices recently dipping despite a tight supply outlook and projections of further increases.

Management Quotes

  • An LME spokesperson:

    "The LME has a comprehensive set of rules around queues, including a specific provision which caps the amount of rent which can be charged in a queue. This has been designed to disincentivise the build-up of queues, including rent shares around any such queues."