Total registered storage space of 3.2 million square meters is now at its lowest level since the exchange started publishing its quarterly updates in 2016.

The shrinkage is down to sliding exchange inventory. Total stocks, including off-warrant stocks, fell by 541,000 metric tons over the first half of 2025 and closed June at a 20-month low of 1.62 million tons.

Low stocks should be a bullish signal for base metal prices but it's one that is currently distorted by geopolitical turbulence.

DIVERTED METAL

Aluminium has for many years been the mainstay of the LME warehousing business. The global production base of 65 million tons is a lot larger than any of the other LME metals and smelters have historically been slow to respond to drops in demand because of the costs of idling capacity.

Surplus metal has in the past gravitated to the market of last resort. There were over three million tons of aluminium in LME storage as recently as 2021. Combined on- and off-warrant stocks now total just 717,000 tons.

Is this a sign of a market in supply deficit? It's difficult to say because the April 2024 ban on new deliveries of Russian metal has deprived the market of one of its biggest physical liquidity providers.

Ever more Russian metal is flowing eastwards to China in response to U.S., UK and European sanctions. China's imports of Russian aluminium surged by 80% year-on-year to 1.1 million tons in January-June.

This year's hike in U.S. import tariffs has further disrupted global flows of the light metal, leaving little available for LME storage despite lucrative warehouse deals.

It's telling that ISTIM UK Ltd, the LME warehouse operator at the centre of several big aluminium stock plays in Port Klang, has cut its presence in the Malaysian city from 22 to 13 units over the last twelve months.

Despite other operators stepping into the gap, total storage capacity at Port Klang declined by 15% over the first six months of the year.

COPPER CLEAR-OUT

Copper bulls got very excited when LME stocks were raided in the second quarter but the near depletion of exchange inventory had nothing to do with demand and everything to do with U.S. President Donald Trump.

Trump's announcement he was launching an investigation into copper imports on national security grounds in February opened up an unprecedented arbitrage between the U.S. duty-paid price traded on the CME and the international price traded in London.

LME warehouses were stripped as inventory was shipped to the United States. U.S. imports of refined copper surged to 724,000 tons between March and June, equivalent to 80% of the country's import demand last year.

CME registered copper stocks are at a 21-year high of 247,210 tons, while LME inventory of 155,000 tons is still down by 43% on the start of 2025 despite some replenishment from Chinese smelters.

The tariff threat turned out to be unfounded but caused a massive redistribution of inventory without making much change to the global exchange stocks picture.

SINGAPORE CHURN

LME zinc stocks have also been cleared out over the last couple of months. Registered tonnage has fallen by 72% since the start of the year and at 65,525 tons is the lowest it's been since May 2023.

Yet time-spreads remain curiously relaxed, the benchmark cash-to-three-months period still trading in small contango.

The market's apparent lack of concern reflects a recent history of zinc stocks churn at Singapore. The city has been the focal point for LME deliveries of both zinc and lead and currently accounts for 99% and 97% of all registered inventory respectively.

It's thus no surprise that LME warehouse operators have opened more units in Singapore than anywhere else over the last 12 months.

The number of listed warehouses in the city has increased by nine to 38, outstripping the eight new listings in Hong Kong and the four in Jeddah after the ports opened for LME business in January and July respectively.

The current conundrum is that the lead is still there, although still churning judging by last week's spate of cancellations, but the zinc has gone missing.

For now

The rising count of LME storage units in Singapore suggests warehouse operators are betting there's still a lot of zinc around for potential LME delivery.

WAITING FOR METAL

Sanctions and tariffs have combined to reduce metal flows to the LME with trickle-down impact on the exchange's physical storage function.

The good news for LME warehouse companies is that disruption can open new opportunities. Hong Kong warehouses started receiving copper almost as soon as they opened thanks to Chinese smelters delivering metal into a market that was tight after the CME arbitrage trade.

The less good news is that Russia, a major aluminium, copper and zinc producer, is increasingly turning to the Chinese market.

The growing trade between the two countries may not be easily reversed, even in the unlikely event that sanctions are lifted.

LME storage capacity has fallen by over a quarter since the start of the decade, when over four million tons of metal were being stored.

Neither stocks nor storage seem likely to grow back to those levels any time soon, given the potential for politics to further fracture what was once a highly globalised physical metals market.

The opinions expressed here are those of the author, a columnist for Reuters.