RPT-ROI-Nickel gluts to zinc deficits: LME shadow stocks tell the story: Andy Home

By Andy Home

LONDON, Jan 9 (Reuters) - Nickel's turbo-charged rally was snuffed out on Wednesday by a super-sized delivery of the battery metal on the London Metal Exchange (LME).

The warranting of 20,760 metric tons was the largest single-day inflow of nickel since December 2019.

By the end of the day the LME three-month nickel price CMNI3 had fallen from a 19-month high of $18,800 per metric ton to $17,895.

Yet the sudden "arrival" of so much nickel shouldn't have come as a surprise.

While LME registered nickel stocks had been flat-lining since September, off-warrant inventory had been steadily accumulating in LME warehouses in Singapore and the Taiwanese port of Kaohsiung, which accounted for most of Wednesday's stocks action.

LME registered stocks have long been a notoriously unreliable price signal, often reflecting warehousing rather than metal dynamics.

Shifts in LME off-warrant inventory, metal that is sitting in an LME warehouse but not yet delivered to the market, are a useful tool for cutting through the noise.

Right now these shadow stocks are shining a light on very divergent supply dynamics within the LME metals pack, ranging from glut to shortfall.

NICKEL GLUT AND LEAD CHURN

LME stocks of nickel, both registered and off-warrant, rose by 57.6% to 367,310 tons over the course of 2025.

It was the largest increase among the core LME base metals, both in terms of sheer volume and relative to the size of the global market.

A sharp 34,000-ton jump in off-warrant inventory in December foreshadowed Wednesday's surge in headline registered stocks.

The other LME metal in chronic oversupply is lead, which has become the metal of choice for stocks financiers looking to arbitrage warehousing deals.

The tussle for units, most of which are located in Singapore, has generated massive churn in registered stocks. Over a million tons of lead moved in and out of the system last year.

Masked by all that noise was a steady build in off-warrant stocks, which grew from 42,000 to 200,000 tons over the course of 2025.

That was much more significant than the marginal 2,875-ton decline in headline registered stocks and propelled total inventory to 438,853 tons, the highest in over a decade.

ALUMINIUM DEFICIT

Aluminium stocks have in the past been the battleground for titanic tugs-of-war between traders and warehouses, much of the action playing out at Malaysia's Port Klang.

The metal churn hasn't stopped. There was a huge single-day inflow of 102,275 tons to registered stocks as recently as October.

But the velocity of the Malaysian roundabout is muted relative to previous years.

Falling off-warrant stocks help explain why. Shadow inventory in the LME system fell by 56% to 159,890 tons during 2025, leaving less available for warehouse trading.

Total aluminium inventory ended the year at 669,140 tons, the lowest level since mid-2022, reinforcing a change in aluminium narrative that has seen the LME three-month price CMAL3 rally above the $3,100-per-ton level for the first time since March 2022.

SHIFTING DYNAMICS IN COPPER AND ZINC

LME combined registered and off-warrant copper inventory fell by a third to 214,900 tons last year.

However, any bullish signal should be tempered by the fact that so much metal has been shifted to the U.S. to profit from the tariff arbitrage between CME and LME prices.

LME stocks may have fallen in 2025 but CME inventory rose by 367,000 tons to a multi-year high of 451,838 tons.

The gravitational pull of units towards the U.S. is even evident in LME off-warrant stocks. Shadow inventory in Baltimore and New Orleans rose from just 1,900 tons in April to 18,100 tons at the end of December.

Zinc is a market shifting in a different way.

The near depletion of LME off-warrant stocks in the first half of 2025 foreshadowed the ferocious squeeze that gripped the market in October.

The reaction has been a surge in metal deliveries to the LME. Total stocks jumped by over 84,000 tons in November and December, which will likely reinforce the consensus view that 2026 is the year zinc shifts decisively from supply deficit to surplus.

TIN STOCKS AT TWO-YEAR HIGH

LME tin has been on a tear recently, the price CMSN3 rising above the $45,000-per-ton level for the first time since 2022 as the market prices in multiple supply threats.

However, fans of the soldering metal should note that total LME inventory closed last year at a two-year high of 8,039 tons thanks to a rapid build of over 2,300 tons in December.

While bulls are pricing in future scarcity, the LME stocks picture is one of current good availability.

HIDDEN COBALT

The LME's cobalt contract sparked back to life in 2025 after several years of inactivity.

The reason lies in the LME storage shadows.

The only cobalt showing up in the LME's daily registered stocks release is 123 tons of metal that has been cancelled in preparation for physical load-out.

However, it's dwarfed by the 2,456 tons sitting in off-warrant storage in Singapore and Rotterdam.

ENHANCED STOCKS SIGNAL

The LME introduced off-warrant stocks reporting in 2020 and tweaked it again in 2025, publishing the information daily rather than weekly and simplifying the reporting rules for warehouses.

It has been an overlooked part of the broader overhaul of the exchange's regulatory structure after the nickel crisis of 2022.

The aim was to improve transparency and in the case of cobalt it's certainly done so. Without the LME's off-warrant reports, the presence of so much cobalt in the LME storage system would have been unknown other than to those directly involved.

But more generally, the layering of shadow stocks over headline registered stocks helps restore some of LME stocks' lost signalling power.

Andy Home is a Reuters columnist. The opinions expressed are his own.

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