Russian Supply Glut Forces LME Aluminum Prices Lower

By Nichole Bastin via AGMetalminer.com

Aluminum prices continued to slowly edge downward, but remained within an overall sideways trend. After prices fell 1.31% throughout April, they dropped an additional 2.22% during the first week of May. But despite the softness, aluminum prices have not yet formed lower lows, so an established downtrend is still not confirmed at this time. Altogether, the Aluminum Monthly Metals Index (MMI) moved sideways, with a modest 0.71% decline from April to May.

Russian Aluminum Now Makes Up Majority of LME Stocks

More than a year after the historic nickel squeeze, the LME continues to face serious problems. The latest issue appears to be the rising presence of Russian aluminum in its inventories.

The embattled exchange first noted the issue last fall. Amid a rising number of companies opting to self-sanction and the United States' decision to impose a 200% tariff (which took effect on April 10, 2023), the LME faced a growing number of calls to institute its own ban on Russian materials. Indeed, market pundits, including MetalMiner, warned that not doing so would lead to the over-presence of discounted Russian material within LME inventories. Left unchecked, this would prevent LME prices from being a reliable global benchmark for aluminum pricing.

Ultimately, the LME opted not to impose any form of restriction in a decision posted in early November 2022. The exchange saw such risks as being largely overstated, noting, "the updated statistics…show there have been no significant moves of this nature." At the close of October 2022, Russian brands totaled 17.7% of live primary aluminum tons present on warrant within warehouses. This figure was up only slightly from the previous year, where Russian brands represented 14.9%.

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Instead of a ban or volume restrictions, the LME opted to calm market concerns by publishing country-of-origin stock data at the beginning of the year. However, that data indicated a lot had changed within the aluminum market since the LME announced its decision. Indeed, by the close of January, Russian brands represented 42% of primary aluminum. The total rose even higher from there, reaching 46% in February and 53% in March.

CME Aluminum Futures Gain Liquidity

Since the nickel squeeze, the LME continues to grapple with what appears to be an ever-increasing host of issues. Meanwhile, other exchanges have quickly capitalized on the LME's perhaps irreparably-bruised reputation to gain a rising market share. For example, the CME's aluminum futures contract continues to gain liquidity. In April, average daily volume hit a new monthly record of 4,000 contracts, up 27% from March. April also saw a record volume day with more than 9,000 contracts traded. Open Interest likewise set a new high of 3,626 contracts by April 19.

LME, CME Aluminum Prices Remain on Par

Source: Insights Chart & Correlation Analysis Tool

The growing dominance of Russian material in LME warehouses remains a bearish risk to LME prices. But for now, LME and CME aluminum futures continue to move largely in tandem. That said, the prices are not the same, which is why MetalMiner publishes both prices within MetalMiner Insights. CME three-month aluminum futures currently sit at a $5.50 per metric ton premium over LME prices. However, this is only slightly above historical norms, as since 2022, CME prices have carried an average $5 per metric ton premium over their LME counterparts.

Should LME prices fall out of line with global prices, it could cause the exchange to rethink its policies. While an outright ban appears unlikely, the LME had previously considered volume limitations to prevent such an outcome. For now, the many perils affecting the LME will continue to benefit other exchanges like the CME.

Aluminum Prices: Notable Price Trends

• Korean commercial 1050 aluminum sheet prices moved sideways, with a 2.31% rise to $3.85 per kilogram as of May 1.
• Indian primary cash aluminum prices rose 2.31% to $2.60 per kilogram.
• The Korean 3003 coil premium over 1050 sheet increased by 2.28% to $3.89 per kilogram.
• Meanwhile, LME primary three-month aluminum prices fell 1.84% to $2,344 per metric ton.
• European 5083 aluminum plate prices saw the largest decline of the index, with a sharp 9.15% decline to $5,295 per metric ton.

By AGMetalminer.com

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