Up to 90% of LME aluminium inventories controlled by one party, data shows

By Eric Onstad

LONDON (Reuters) - One party has taken control of up to 90% of available London Metal Exchange (LME) aluminium inventories worth half a billion dollars, according to LME data on Monday.

The exchange does not provide the identity of parties holding large positions, but often investors or traders will hold inventories hoping to profit from looming shortages or to meet commitments to customers.

"It seems a fair assumption to think it must be a physical trader looking for metal to fulfil a physical short," said Alastair Munro, senior base metals strategist at broker Marex.

That seems to be reflected in a spate of fresh cancellations in LME warehouses recently - 32,175 metric tons in a week - in which owners give notice of plans to remove metal, Munro added.

LME positioning data showed between 80% and 90% of LME inventories of aluminium and zinc were each held by one party as of February 20.

"The LME is closely monitoring the tightness in these markets and has the necessary controls in place to ensure continued market orderliness," the exchange told Reuters in an email.

The LME is owned by Hong Kong Exchanges and Clearing.

Total LME stocks of aluminium stand at 535,900 tons, but the LME bases its position data on inventories that are available and not cancelled - earmarked for impending shipment - which is 208,400 tons.

Ninety percent of those available stocks of the metal used for transport, packaging and construction was worth $505 million at the LME cash price.

Benchmark LME three month aluminium prices touched its highest in nearly nine months on Friday at $2,736 a ton in the wake of a decision by the European Union to ban Russian primary aluminium imports.

Overall LME stocks have halved since May last year, suggesting a tighter aluminium market.

This is reflected in the premium of cash LME aluminium over the benchmark three month contract, which surged to $38 a ton on February 17, the highest on a closing basis since May 2023.

The premium, also known as a backwardation, usually indicates shortages of near-term inventories on the LME.

The single large position of zinc held by one party was worth about $370 million, but the key LME zinc spread showed no backwardation.

While LME inventories of the metal mainly used for galvanizing steel have tumbled, mine supply is expected to recover and analysts have forecast a global surplus this year.

(Reporting by Eric Onstad; additional reporting by Polina Devitt and Pratima Desai; editing by David Evans and Tomasz Janowski)