February 14, 2023

As of January 31, approximately 41% of the primary aluminum, or 93,750 mt, that is in LME warehouses is of Russian-origin, according to the newly initiated LME Country of Origin stock report from last Friday. AEGIS notes that the amount of Russian aluminum in LME warehouses has likely increased since January 31, and could be why LME prices have stalled this month. Last week, aluminum stocks in South Korea jumped by over 100,000 mt, and Reuters reports suggest that this metal was of Russian-origin. Glencore, who is the top-customer of Russian aluminum producer Rusal, was responsible for last week’s deliveries, according to the same reports.

We also note that inflows of Indian-origin aluminum have likely increased in February and could have also added to the recent pressure on aluminum prices. Yesterday morning, 91,825 mt of aluminum was delivered into Malaysian LME warehouses. According to Reuters, Malaysian LME warehouses are a known delivery point for Indian-origin metals. As of January 31, approximately 53% of the primary aluminum, or 122,850 mt, that is in LME warehouses is of Indian origin, according to the LME Country of Origin stock report. (Source: Reuters, LME)

Many traders have feared that allowing large amounts of metal onto the exchange could distort global prices. The reasons behind this are two-fold. First, to deliver to the exchange, a trader such as Glencore needs to open a (likely large) short position. Opening a large short position could put downward pressure on prices. Also, delivering to the exchange likely occurs when a trader cannot find a physical buyer or end-user for the metal. This signals that market demand is falling.

Are you concerned that more deliveries onto the LME could occur? More importantly, are you concerned more deliveries could lead to lower 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. (2/14/2023)

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Price Indications

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2/9/2023: UPDATE 1-Russian metal makes up 42% of LME warehouses' stocks -report

2/8/2023: Glencore deposits more Russian aluminium on LME system -sources

2/8/2023: Exclusive: Peru mines on power despite protests, though halt risk looms

2/6/2023: U.S. considering 200% tariff on Russian aluminum, official says

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2/6/2023: Investments in Indonesia's nickel industry

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