Vitol, Gunvor rock metals markets with big aluminum bets

Some of the world’s biggest energy traders are making waves in global metals markets by taking positions so large that they prompted questions from the London Metal Exchange.

Vitol Group and Gunvor Group have both taken long positions in the past few months in the LME aluminum contracts nearing expiry that were at times larger than the readily available stock in the exchange’s warehousing network, according to people familiar with the matter, who asked not to be identified as they weren’t authorized to speak publicly.

A push into metals by several giants of energy trading has been the talk of the industry in the past year, as the firms embarked on a hiring spree that drove up salaries and bonuses. But this is the first time they’re playing a major role in the markets, challenging the dominance of incumbents Glencore Plc and Trafigura Group.

The positions were in contracts that have since expired, and it’s not unusual for big traders to take large positions on the LME in an attempt to secure relatively cheap supplies of physical metal. Vitol and Gunvor’s recent entry into the market means they don’t have the longstanding contracts to buy direct from producers that more established traders do.

The LME’s contracts are physically deliverable, meaning that while the large majority of positions are closed out before expiry, traders can hold onto positions to receive physical metal in an LME warehouse somewhere in the world. Doing so, however, can cause strains in the market, squeezing other market participants with short positions.

The aggressive moves by Vitol and Gunvor caused consternation among rivals and helped push spot aluminum prices to a premium over futures for delivery in three months — a hallmark of a tight market.

The LME has asked both Gunvor and Vitol about their aluminum positions in recent months, the people said. The exchange asks traders with big positions in contracts nearing expiry how they intend to handle them without disrupting the market — a step that’s often used as a way to encourage them to reduce their positions.

Vitol and Gunvor declined to comment. A spokesperson for the LME said the exchange routinely requests further position management information from market participants “and has the power to require positions to be managed as appropriate.”

The heightened competition from energy traders in metals markets comes as the firms are seeking to reinvest the vast windfall profits they made in the wake of Russia’s invasion of Ukraine. Many see metals, needed in electric vehicle batteries, power cables and renewable energy facilities, as a prospective area for growth even if oil demand starts to decline.

Gunvor and Vitol took large long positions in the LME’s main aluminum contracts for February and March, respectively, the people said. LME data shows that for the February contract, one trader held a position equivalent to at least 30% of open interest until Feb. 14, three trading days before delivery. For the March contract, one trader held a position equivalent to at least 30% of open interest until March 14, also three trading days before delivery.

In each case, that represented well over 200,000 tons of aluminum — at a time when so-called on-warrant stocks that are readily available to other buyers have fluctuated between about 204,000 and 258,000 tons.

While Gunvor and Vitol have been making bullish bets on aluminum, another big energy trader, Mercuria Energy Group Ltd., has been a major buyer of copper on the LME, some of the people said. The company is seeking to ship metal to the US to profit from the large gap in prices spurred by the threat of tariffs.

As part of its metals push in the past year, Mercuria hired Trafigura’s former co-head of metals Kostas Bintas and several dozen others. In a recent interview, Bintas told Bloomberg that Mercuria was currently shipping 85,000 to 90,000 tons of copper to the US.

(By Jack Farchy, Alfred Cang, Archie Hunter and Mark Burton)