December 2, 2022

In a rare occurrence, LME aluminum on-warrant (i.e. available to trade) and canceled warrant (i.e set for delivery) stocks both equaled 249,575 mt on Thursday morning, indicating that combined LME stocks then totaled 499,150 mt. Largely due to fears that Russian metals could be banned from the exchange, total stocks increased by over 75% in October as traders dumped metal onto the exchange. However, the LME decided against a ban on November 11, and traders have begun to pull aluminum from LME warehouses. Total stocks are now down considerably from the October 27 high of 587,100 mt.

Traders have long worried that allowing significant volumes of aluminum onto the exchange could be bearish for prices. So why are LME aluminum prices up nearly 15% since early October? AEGIS notes that the recent jump in prices could be tied to a weakening US Dollar and China’s relaxation of its COVID policies. The USD and aluminum normally trade inversely to each other. True to form, the USD is down nearly 9% from the late September highs, while aluminum prices have rallied. As for China, government officials stated they will allow home quarantine for “some” people” who have tested positive for COVID-19. Officials also stated they will “speed up” COVID vaccinations for the elderly. More actions will be announced “in coming days,” according to Reuters. We also note that these measures could boost aluminum demand, and therefore could remain supportive of LME aluminum prices. (Source: Reuters)

Even with the recent rally, LME aluminum prices are down nearly 12% this year, as the last trade on the 3M Select contract was $2,477.50/mt (7:00 AM CST). Aluminum end-users might consider applying simple hedges involving swaps and call options. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (12/2/2022)

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Price Indications

Today's Charts

AEGIS Insights

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11/30/2022: AEGIS Factor Matrices: Most important variables affecting metals prices

11/17/2022: Do Chinese Aluminum Import and Export Flows Affect LME Prices?

11/07/2022: AEGIS Primer on LME Aluminum Price History

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11/29/2022: LME had regulatory obligation to be able to cancel nickel trades in March, filings say

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11/28/2022: METALS-Base metals fall amid China COVID protests

11/28/2022: South Korea's striking truckers say no deal reached in government talks

Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.