Trafigura builds large aluminum positions on London Metal Exchange
The trader is seeking to profit from an arbitrage opportunity as metal inventories fall and China faces its own supply squeeze.
Trafigura Group has acquired significant volumes of aluminium on the London Metal Exchange (LME), according to people familiar with the matter reported by Mint.
The trader has built a large long position in the aluminium market to secure metal that could be sold for profit in China. These positions in the November contract are collectively larger than the total LME exchange stocks, which stand at 226,350 tons.
The LME stocks are currently at their lowest level since 1990. This shortage, combined with large positions, has driven the market into its steepest backwardation in decades, with immediate contracts trading much higher than later-dated futures.
The move comes as the Chinese aluminium market also faces a squeeze. December delivery contracts on the Shanghai Futures Exchange recently closed 550 yuan a ton above January contracts, marking the steepest backwardation for a front-month contract since 2002.
A spokesperson for Trafigura declined to comment on the matter. The LME stated that it has arrangements to prevent large positions from exerting undue influence and can mandate that market participants manage their positions as required.
While the LME's aluminium inventory is of Russian origin, which some western banks avoid due to sanctions, the metal remains widely accepted in the Chinese market.
