The London Metal Exchange (LME) has taken rare and decisive action to mitigate potential market disruption stemming from a massive aluminum position held by Mercuria Energy Group Ltd., according to individuals familiar with the matter. The exchange has compelled Mercuria to lend out a significant portion of its June aluminum contract holdings to other traders in an effort to maintain stability and avert a possible supply squeeze.

Mercuria’s long position in the June contract had grown so large that it exceeded the total available inventory in the LME’s warehouse system — much of which, notably, was also held by Mercuria itself. This concentration of both contracts and physical inventory raised concerns among market participants and prompted the LME to step in, citing its broad authority to prevent what it classifies as “undesirable situations.”

Large Positions Amid Limited Inventories

As of early this week, Mercuria’s position amounted to between 600,000 and 800,000 tons of aluminum, representing roughly 30% to 39% of the open interest in the June contract. That figure was down from a peak of over 40% — or more than 862,000 tons — as of Monday, according to data from the exchange.

By comparison, on-warrant aluminum inventories available in the LME’s system stood at just over 320,000 tons. More than 90% of those inventories were held by a single trader, widely believed by those close to the situation to be Mercuria itself. The mismatch between Mercuria’s contract position and the available deliverable material raised the prospect that traders with short positions could be unable to source enough aluminum to meet delivery obligations at contract expiry.

LME Wields Broad Discretionary Powers

Although the LME has long had rules in place to manage dominant positions, these typically apply only to contracts nearing expiration and to warehouse inventories. The rules do not explicitly govern the larger monthly contracts that expire on the third Wednesday of each month.

In this case, the LME invoked its general powers to prevent disorderly market conditions. According to the exchange’s rulebook, a special committee may take any steps it deems necessary to prevent “the development or likely development of a corner or undesirable situation or undesirable or improper trading practice.”

Using this discretionary authority, the exchange required Mercuria to lend out part of its June position to alleviate stress on the physical delivery mechanism. The intervention has so far succeeded in calming the market. Over the past month, the spread between the June and July aluminum contracts has remained in contango, meaning June has traded at a discount or parity to July — a key indicator that delivery fears have been contained.

Following Bloomberg’s reporting of the LME’s actions on Friday, the June–July spread widened to a contango of as much as $6 per ton, further signaling that the immediate pressure had been relieved.

Industry Trends and Broader Context

Mercuria’s large position comes amid a broader trend of energy trading firms, including Vitol Group and Gunvor Group, expanding aggressively into metals markets. Their increasing presence has reshaped dynamics on the LME, as these firms often rely more heavily on exchange mechanisms due to a lack of long-term supplier contracts traditionally held by established metals traders.

The ongoing geopolitical tensions, particularly those involving Russia, have also played a role. Russian-origin aluminum has become a focal point within LME inventories, as it is generally priced lower than material from other sources and thus more likely to be delivered against contracts. Mercuria is said to have acquired its large June position as a strategic bet that any easing of Western sanctions against Moscow could raise the value of Russian metal and, by extension, increase near-term aluminum prices.

However, there has been little indication of diplomatic progress between Russia and Ukraine, reducing the likelihood of immediate sanctions relief.

Regulatory Implications

The LME’s decision to intervene comes amid ongoing discussions about imposing stricter position limits on its markets. Bloomberg reported last month that the exchange has been considering caps on traders’ exposure in nearby contracts to prevent positions from exceeding total inventory levels. While formal responsibility for such limits is not scheduled to transfer from the UK’s Financial Conduct Authority (FCA) to the LME until July 2026, the current situation indicates that the exchange is already acting preemptively to enforce de facto constraints.

“The LME has a number of arrangements in place to guard against any undue influence of large or dominant positions, including lending rules, daily position reporting and accountability levels,” a spokesperson for the exchange said in response to inquiries. “The LME also routinely requests further position management information from market participants and has the power to require positions to be managed as appropriate.”

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

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