Commodity trader Trafigura has delivered significant amounts of aluminium to London Metal Exchange (LME)-approved warehouses in Malaysia, reportedly to take advantage of a financial arrangement, according to sources familiar with the matter.
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Surge in the aluminium stocks
Aluminium inventories in LME-registered warehouses in Port Klang jumped by nearly 100,000 tonnes on October 30, lifting the total to about 366,850 tonnes. The rise is largely attributed to Trafigura’s deliveries, which were mostly placed on LME warrant, a certificate granting ownership of the metal.
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Metal on warrant enables higher rent than material stored off warrant, making such transactions financially attractive for traders.
Financial incentives supporting the initiative
The specific terms of Trafigura’s deal remain undisclosed. According to industry sources, it could involve rent-sharing or incentive-based agreements that reward traders when their metal is placed on warrant.
For aluminium reserves in Port Klang, the daily rent is around 56 cents per tonne, which amounts to roughly USD 56,000 a day for 100,000 tonnes of metal. In some cases, the LME allows warehouse operators to charge rent for up to 80 days while the metal is queued for withdrawal.
Incentives vs the physical market
Incentive payments are usually calculated on a per-tonne basis, taking into account free-on-truck (FOT) rates and the potential warehouse rent. For a metal owner or trader who prefers storage over sale in the physical market, such incentives are the physical premium, the extra cost consumers pay over the LME benchmark to secure immediate supply.
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Consumers generally purchase aluminium on contracts tied to the LME benchmark price plus a regional premium. When supply tightens, they also turn to the spot market to meet urgent needs. However, Trafigura, a Swiss-based global commodities group, declined to comment on the warehouse deliveries or the financial structure behind them.
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