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(Bloomberg) -- Aluminum prices fell as a surge in exchange stockpiles exacerbated a risk-off mood seen in the wake of Moody’s downgrade of US debt and mixed economic data from China.
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Readily available aluminum inventories in London Metal Exchange warehouses rose by 92,950 tons to 343,025 tons, the biggest jump in more than a year, data from the bourse show. The increase came as metal that had been ordered for withdrawal from warehouses in Malaysia was placed back on warrant.
So-called re-warrantings often occur when adverse price moves expose stockholders to losses on the LME. The exchange’s main aluminum contract for May delivery has been trading at a growing premium to later-dated futures in recent days. That backwardation makes it costly for traders to roll forward short contracts held as a hedge against their inventory.
With the contracts due to expire Wednesday, some traders may have opted to deliver metal rather than rolling them forward at a loss. The backwardation in the May-June spread has been closely watched, with Bloomberg reporting last week that Mercuria Energy Group built a major long position in nearby contracts, a bet that any easing of sanctions against Moscow would tighten the market.
In other metals, on-warrant nickel stockpiles climbed by 8,166 tons to 183,420 tons, the biggest tonnage increase since 2021, reflecting fresh deliveries in warehouses across Asia.
A risk-off mood swept through commodities and other asset classes on Monday after data in China showed that while the country’s economy performed better than expected in April, the key property market remained soft and consumption disappointed.
Separately, China’s aluminum output reached a record last month as smelters benefited from falling production costs.
Global stock markets also staged a retreat after Moody’s slashed its US rating by one level amid fears about the impact of President Donald Trump’s trade war and the prospect of unfunded tax cuts.
Aluminum fell 1.3% to settle at $2,450 a ton on the LME at 5:51 p.m. local time. Other main LME metals were mixed, with copper up 0.8% and zinc down 0.6%.
--With assistance from Yvonne Yue Li.
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