February 9, 2023

Market participants speculate that large volumes of Russian aluminum are once again being shipped into LME warehouses in Southeast Asia. AEGIS closely monitors LME warehouse stocks, as they could represent changes in global demand. Yesterday morning, warehouse stocks in South Korea, surged to 173,500 mt, up from 65,600 the day prior. According to Bloomberg, the LME’s warehouses in South Korea are closely monitored due to their proximity to Russia’s main port for aluminum exports. Rusal, which is Russia’s top aluminum producer, has repeatedly denied that they would deliver into LME warehouses. However, market participants have expressed concerns that Glencore, which is Rusal’s top customer, could deliver large volumes into LME warehouses.

AEGIS notes that Glencore was accused of similar deliveries of Russian aluminum into South Korean LME warehouses last October. At that time, AEGIS and other market participants felt that Glencore and others could have been offloading Russian aluminum due to fears the LME would ban Russian metal from the exchange. However, in November, the LME decided against such a ban, and fears that large volumes of Russian metals would be continually dumped onto the exchange eventually subsided, until recently. (Sources: Bloomberg, Reuters, LME)

As we stated above, large changes in LME warehouse stocks could signal shifts in global demand. If global demand slows, then traders like Glencore could unload excess inventories onto the exchange. To do this, such a trader would have to develop a sizable short position, which could pressure prices. Those carrying inventory and concerned about decreasing prices might consider hedges that provide downside protection, such as selling swaps or buying put options. Such positions are standard; however, they can result in opportunity costs or cash costs if metal prices increase. Please contact AEGIS for specific strategies that fit your operations. (2/9/2023)

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