Key Moments
- LME aluminum inventories fell to 271,275 tonnes on July 24, the lowest level since records began in January 1998.
- On-warrant stocks declined to 245,350 tonnes on July 24, while SHFE inventories stood at 455,092 tonnes.
- Ongoing disruptions in the Gulf and the Strait of Hormuz are driving an accelerated drawdown of LME warehouse metal.
Exchange Stocks Slide to Record Lows
Aluminum stocks held in the London Metal Exchange warehouse network have dropped to their lowest level this century, as geopolitical tensions in the Middle East disrupt supply routes and prompt buyers to increasingly tap exchange inventories to secure physical metal. This continuing slide in stocks is occurring even as market forecasts still point to aluminum surpluses in the years ahead, highlighting a growing disconnect between projected balances and near-term physical availability.
LME data shows that total aluminum inventories stood at 271,275 tonnes on July 24, the lowest reading since the exchange began publishing records in January 1998. This remaining volume represents less than one day’s worth of global aluminum consumption, underscoring how little exchange-deliverable metal is currently accessible to buyers.
The trend is equally evident in on-warrant stocks – material available for trading and physical delivery – which decreased to 245,350 tonnes on July 24, their lowest level since April 2025.
Inventory Composition and Regional Contrasts
Recent LME monthly stock origin reports indicate that Russian aluminum now makes up the bulk of the remaining inventory. While metal produced before April 13, 2024, remains eligible for trading on the exchange, some participants have continued to sidestep Russian-origin material.
In contrast to the LME, inventories on the Shanghai Futures Exchange have also been trending lower since mid-June but remain relatively robust at 455,092 tonnes. Against this backdrop, benchmark three-month aluminum on the LME was last quoted 0.3 per cent higher at USD 3,170 per tonne.
| Market / Category | Inventory Level | Timing | Comment |
|---|---|---|---|
| LME – Total aluminum stocks | 271,275 tonnes | July 24 | Lowest since records began in January 1998 |
| LME – On-warrant stocks | 245,350 tonnes | July 24 | Lowest since April 2025 |
| SHFE aluminum inventories | 455,092 tonnes | Since mid-June (declining trend) | Remain comparatively healthy |
Why LME Stocks Are Central to the Physical Market
The London Metal Exchange oversees a global system of licensed warehouses in which primary aluminum can be stored and delivered against exchange contracts. Metal lodged in this network provides what is widely viewed as the most transparent and independently verified indication of immediately available physical aluminum worldwide.
Within this system, on-warrant stocks represent metal that is still freely tradable and deliverable. By contrast, cancelled warrants denote volumes that have already been earmarked for withdrawal from LME warehouses and are no longer accessible to other market participants.
The relationship between cancelled and on-warrant stocks is closely followed as a leading indicator of future inventory trends. An increase in cancelled warrants typically signals that physical buyers are removing material from the exchange in anticipation of tighter supply conditions or stronger prices, increasing the likelihood of further draws on inventories.
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Gulf Disruptions Intensify Inventory Drawdowns
The sharp reduction in LME stocks has been driven less by broad-based weakness in global production and more by disruptions in one of the industry’s key producing hubs.
The Gulf region accounts for about 9 per cent of global primary aluminum production capacity, and its two largest smelters were targeted during Iranian attacks in late March. At the same time, persistent disruption in the Strait of Hormuz has complicated shipping through the area, affecting both alumina imports and exports of finished aluminum.
Gulf smelters rely on imported alumina to maintain output, making stable access through the Strait of Hormuz critical. Ongoing shipping challenges have impeded the inflow of raw materials and curtailed the movement of finished aluminum to overseas buyers.
Hobbs noted that the disruption is making it increasingly difficult for Gulf smelters to receive raw materials and export their metal, adding that despite projected aluminium surpluses in 2027 and 2028, the market may be “too complacent about supply risks.”
As supply from the Gulf has become less dependable, consumers have turned more heavily to LME stocks to secure physical metal. The uninterrupted decline in exchange inventories over the past five months indicates that physical demand continues to exceed the supply of exchange-deliverable material, pointing to a structural imbalance that may not be fully reflected in current medium-term market forecasts. This development has also amplified concerns about metals supply security in both public and private sector planning.
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Four Possible Paths for the Aluminum Market
The trajectory of the aluminum market in the coming months will largely hinge on developments in the Middle East and the speed at which supply chains in and around the Gulf recover.
- Scenario 1 – Rapid normalisation of shipping: A swift restoration of shipping flows through the Strait of Hormuz, described as having a low-to-moderate probability, could allow LME inventories to rebuild to 400,000 tonnes or more. This would likely ease supply concerns and exert bearish pressure on aluminum prices in the near term.
- Scenario 2 – Prolonged disruption: A disruption lasting between six and twelve months, assigned a moderate probability, could drive LME inventories below the 200,000-tonne threshold. Such an outcome would materially tighten physical availability and generate a strongly bullish backdrop for prices.
- Scenario 3 – Partial recovery with firm demand: A third scenario, also given a moderate probability, envisions a partial recovery in supply chains alongside resilient demand. Under these conditions, LME stocks are expected to stabilize between 250,000 and 300,000 tonnes, implying a neutral-to-bullish setting for the market.
- Scenario 4 – Full restoration with surplus realisation: The final scenario assumes a complete normalization of supply combined with the realization of projected surpluses. Although seen as unlikely in the near term, this path could lift LME inventories above 500,000 tonnes and create a bearish medium-term outlook for aluminum prices.
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