To avert a supply squeeze, the London Metal Exchange has ordered Mercuria Energy Group Ltd to loan out part of its outsized June aluminium position, which exceeds the metal available in LME warehouses.
As of June 2025, Mercuria Energies' aluminium stock was reported around 600,000-800,000 tonnes, indicating 30 per cent to 39 per cent of the open interest for June. According to LME, the position held by the firm represented almost 40 per cent above the peak. On the same grounds, the LME system's on-warrant aluminium inventories were only above 320,000 tonnes.
Mercuria holding 90 per cent of the inventory creates a mismatch between the contract and the material available for delivery. Moreover, this mismatch restricts the small position holding traders from sourcing the right amount of aluminium and meeting the delivery obligation as set in the contract.
LME has strict rules in place to govern dominant positions but they are mostly applicable to the contracts that are on the verge of expiration and warehouse inventories. Moreover, such decisions apply to managing the monthly contracts, which expire on the third Wednesday of every month. However, in this scenario, the LME has exercised its general rule to eliminate the likelihood of disorder in the current market conditions.
The exchange rulebook of the LME highlights a need for appointing a special committee responsible for deciding upon the measures to be taken to prevent “the development or likely development of a corner or undesirable situation or undesirable or improper trading practice.”
Nonetheless, the stress and tension persisted because the spread between June and July aluminium contracts remained in contango. This indicates that the June contract was provided at a discount, representing a disparity in July, for which the delivery fear is still intact.
Extensive geopolitical tension, especially those involving Russia, has been one of the major causes of the firm's June position, more so because Russian-origin aluminium is considered a focal point in the LME inventories due to its lower pricing and delivery against the contracts.
Owing to this, Mercuria Energies has stated that they acquired a large position in June because of their strategic bet against the ease of Western sanctions against Moscow. This strategic bet shall secure the firm from Western sanctions, raising the value of the metal in Russia. This further adds a diplomatic progression between Ukraine and Russia, relieving the imposition of immediate sanctions.
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