Trafigura Dumps Over 400,000 Tons of Aluminum into LME Warehouses

• Trafigura delivered over 400,000 tons of aluminum into LME warehouses, causing inventories to soar.
• Concerns arose over the impact of Russian aluminum stocks on LME prices, but no significant delta emerged.
• U.S. Midwest Premium declined, reflecting an oversupplied market, while domestic production levels remained high.

Via Metal Miner

Overall, the Aluminum Monthly Metals Index (MMI) rose 7.06% from April to May.

The aluminum price remained bullish throughout April, rising 11.47% month over month. However, prices found a peak on April 22 when they failed to break above their 2023 high. They then retraced to the downside during the remainder of the month and into early May. 

LME Aluminum Inventories Skyrocket After Trafigura Delivery

Amid the aluminum price retreat, Trafigura dumped over 400,000 metric tons of aluminum into LME warehouses. Most of the volumes reportedly originated from India, although the dump potentially contained some Russian material. While others informed Reuters that an additional 400,000 tons potentially await delivery, the first delivery saw LME stocks jump 88% to their highest level since January 2022. 

The LME continues to navigate the dynamic market following sanctions from the U.S. and UK that banned the trade of Russian aluminum. The immediate aftermath saw traders attempt to game the system by taking advantage of rent-sharing deals. Meanwhile, the sanctions saw Russian aluminum classified into two categories: material produced before April 13 and material produced after, which would be subject to sanctions.

Major traders, including Glencore and Trafigura, ordered material produced before April 13. To profit from rent-sharing with warehouses, they then redelivered it to warehouses as the less desirable category. Assuming the material would remain unwanted, traders aimed to profit from storage fees. The LME followed such moves with their own efforts to disincentivize such withdrawals.

Ban Sees Increase in Market Participation

According to Country of Origin data from the LME, April saw a sharp decline in Russian stocks from March, amounting to nearly 200,000 tons. This caused the proportion of Russian aluminum to decline from 91% in March to 88% in April. The loss of Russian aluminum saw inventory levels drop considerably until the most recent delivery forced a sharp rebound. 

Because of the glut of Russian stocks in LME warehouses, the most recent sanctions risked significant implications on LME prices. Russian material comes at a discount to material sourced elsewhere, which led to concerns that the supply could weigh on LME aluminum prices. However, no meaningful delta emerged between the LME and CME aluminum prices before and after the most recent sanctions. Instead, news of the trading ban triggered a strong increase in market participation on both exchanges.

Domestic Demand Appears Steady, Market Oversupplied

Assuming Trafigura’s delivery is mostly Indian material, the sharp increase in stocks could weigh on aluminum prices. While Inventory levels do not offer a meaningful correlation to prices, they nonetheless help color overall market sentiment. 

Globally, aluminum remains an oversupplied market. Even as demand conditions in the U.S. reportedly remain “good,” the Midwest Premium continued to slump over recent weeks. The premium remains mostly sideways with a downside bias, but has yet to retouch its mid-March lows.

Meanwhile, data from the International Aluminum Institute showed that North American primary aluminum production levels remain robust. This could trigger cutbacks from domestic producers to boost prices. However, such a move could increase the competitive advantage for imports.

Aluminum Producers Post Q1 Results

Quarterly results from Century Aluminum saw primary aluminum shipments rise slightly from Q4 2023. However, they remained down on the year. U.S. primary aluminum shipments rose from 96,002 tons during Q4 to 97,602 tons during Q1. However, Q1 2023 saw shipments total 102,430 tons. According to the company, “net sales for the first quarter ended March 31, 2024, decreased by $22.8 million sequentially primarily due to lower regional and value-added product premiums.” 

Meanwhile, Alcoa’s quarterly results saw a slight dip in aluminum shipments from 638,000 metric tons in Q4 2023 to 634,000 metric tons in Q1 2024. However, Q1’s shipments increased year over year, rising from 600,000 metric tons during Q1 2023.

By Nichole Bastin

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