Aluminium prices declined on Friday after London Metal Exchange (LME) data showed an 88% jump in inventory levels. The most-traded three-month aluminium contract CMAL3 fell as low as $2,537 per metric ton following the release of the inventory data.
The LME data showed that aluminium stocks in its approved warehouses rose by 424,000 metric tons to 903,850 tons on Thursday, the highest level since January 2022. Additionally, 135,350 tons were “re-warranted,” meaning they became tradable on the exchange.
While increasing inventory typically suggests relaxed supply and could put significant downward pressure on prices, the aluminium market may be an exception. Traders and warehouses have been cultivating new ways to profit from the LME’s post-sanction rule changes on Russian metals last month.
Daniel Smith from AMT commented that these deliveries have little to do with market fundamentals, as aluminium spreads have already shifted into a steep contango, indicating that the market was expecting these stocks to arrive.
The discount of the cash contract against the three-month aluminium contract was $47.7 per ton, a condition known as contango that is usually accompanied by relaxed supply.
In the copper market, attention was on the growing gap between prices in Chicago and Shanghai, which could give rise to arbitrage opportunities. The front-month copper contract on the Shanghai Futures Exchange has gained 15% so far this year, lagging behind a 21% rise on the Chicago Mercantile Exchange.
Some traders are looking to re-export copper stocks out of China to capture these arbitrage gains, according to a trader source.
Benchmark three-month copper CMCU3 rose 1.6% to $10,062 per metric ton. The rise in copper prices was partly attributed to expectations of potential U.S. interest rate cuts, which could weaken the U.S. dollar and make dollar-denominated metals more affordable for holders of other currencies.