The London Metal Exchange will enter 2023 with the smallest available warehouse stockpiles in at least 25 years, setting the stage for future squeezes and spikes if demand turns out stronger than expected.
Available inventories of the six main metals traded on the LME plunged by two-thirds in 2022, with aluminum’s 72% decline accounting for the bulk of the drop, while zinc shrank by 90%. Collectively, inventories not already marked for withdrawal hit the lowest level in data going back to 1997 on Thursday, and finished the year only fractionally higher.
While most of the world’s metal never sees the inside of an LME warehouse, exchange inventory levels are important because every short seller who holds a contract to expiry must deliver physical metal registered in an LME warehouse.
The LME has introduced new rules to allow deferral to prevent future squeezes, but the exemptions come with costly fees.