The aluminium markets have just seen another twist in what’s become a long-running stocks carousel. But this time, the spin may be nearing its end. As reported by Reuters on August 20, over the past six weeks, a hefty 156 thousand tonnes of aluminium found its way into London Metal Exchange (LME) warehouses. Yet, this wasn’t fresh metal entering the system. It was almost exclusively a reclassification of existing off-warrant supplies already stashed away in Port Klang, Malaysia.
Image for representational purposes only
So, when you read ‘reclassification of existing off-warrant supplies’, it means the metal was already physically sitting in the warehouse (say, Port Klang in Malaysia). But it was being kept off the books in private storage deals. Now, some of that same aluminium has been switched back into ‘on-warrant’ status, so it suddenly appears in the official LME stockpile numbers.
This suggests that what looked like a surge in availability was actually more of an inventory shuffle. Even so, the total LME stockpile (registered plus off-warrant) remains down nearly 300 thousand tonnes since early 2025, sitting at approximately 717 thousand tonnes. By comparison, even that modest bump since May, i.e. an increase of just 41,000 tonnes barely registers as a ripple in the overall decline.
Port Klang’s roundabout slows to a crawl
To understand the gravity of the situation, let’s rewind to May 2024, when trade house Trafigura initiated the current cycle by dumping 650 thousand tonnes into LME warehouses in Port Klang. The motive? A profitable rent-sharing play with warehouse operator ISTIM UK Ltd, rather than a conventional physical trade, with sanctions sidelining Russian metal, Indian-origin aluminium looked safer and more lucrative to hold.
This triggered a delayed release line reminiscent of the nightmare queues of the 2010s — load-out queues stretched to 293 days in August 2024, only dissipating by May 2025. Now, the fresh rotation appears subdued by adding just those 41,000 tonnes since late May, with the metal returning to the same Port Klang warehouses.
Warehouse activity confirms this cooling flame: ISTIM has pared down its listed units in Port Klang from 22 to 13 over the past year. In total, storage capacity in that port is 15 per cent lower since the start of 2025 and has plummeted to just half of its 2021 level.
Port Klang’s shuffle padded the stats, but it didn’t solve the market’s shortage problem.
Superficial movement, substantial constraints
Despite all the reportable activity, LME time-spreads remain stagnant. The cash-to-three-month spread hasn’t budged in two months, a signal that nothing at root has really changed. Stocks are languishing at three-year lows, and breaking the downward trend will take more than just paperwork. It definitely requires actual physical inflows.
Why is fresh supply so scarce? Several drivers converge here:
- A European phase-out of Russian aluminium,
- A sharp 50 per cent hike in US tariffs,
- And, ironically, surging Chinese demand, wherein China imported 1.25 million tonnes of primary metal in the first half of 2025, accelerated further into July.
Meanwhile, warehouse revenues have shrunk. ISTIM and peers can no longer outbid buyers with rent incentives and inventories are scarce. The result? Physical arbitrage looks more lucrative than LME storage, and fresh metal is being siphoned off before it ever gets recorded.
If this roundabout has indeed completed its last loop, LME’s role as a buffer for physical delivery is being weakened. Without new inflows, the system risks becoming a data illusion—lots of movement but no real change.
Aluminium pricing: From short-term lulls to long-term tightness
As of mid-August, LME aluminium was trading around USD2,620-2,630 per tonne, with prices hovering near USD 2,622.55 on August 22, reflecting a modest year-to-date gain of about 3 per cent.
After dipping in Q2, the market has rebounded as LME prices climbed from a low of around USD 2,335 in April back to the mid-USD 2,600s by July-August. At the end of July, the monthly average price was about USD 2,606, up steadily from USD 2,526 in June and USD 2,449 in May.
Reflecting concerns over slowing global growth and elevated US tariffs, Goldman Sachs’ revised forecast now expects aluminium prices to fall to a quarterly average low of US USD 2,000 per tonne in Q3 2025, before recovering to USD 2,300 per tonne by December. The bank then anticipates a rebound to USD 2,720 per tonne by end-2026, and an average of USD 2,800 per tonne in 2027, driven by a return to structural deficits.
In early 2025, Reuters analysts collectively forecasted through a poll of an average aluminium price of USD 2,573.50 per tonne, buoyed by an expected shift to a supply shortfall. That deficit was initially projected at 8,000 tonnes, expanding to 365,000 tonnes in 2026.
Despite trade tensions and weak demand in some regions, aluminium prices benefit from China’s output cap (45 million tonnes per year), which limits expansion and supports prices. Analysts see a possibly balanced market in 2025 with risks tilting into deficit if disruptions occur.
In the near term, aluminium pricing is navigating choppy waters, buffeted by macroeconomic headwinds and weak demand sentiment, as reflected in Goldman’s cautious Q3 projection. Yet temperature is rising beneath the surface. From mid-year onwards, LME prices have begun a quiet climb back to the low-USD 2,600s, supported by constrained supply flows and a thinning inventory base.
Meanwhile, the LME has tightened its position rules, capping dominant market participants’ influence as supply chain stress and geopolitical disruptions reshape metals markets.
Information credit: Reuters
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