Where are the commercial undertakings?

Physical inventories of on-warrant stock increased from relatively low historical levels around this time last year as canceled warrants declined sharply from earlier 2025 levels. Since mid-2025, however, on-warrant inventories have trended lower to multi-year lows while canceled warrants have fluctuated, remaining well above year-earlier levels.

In the interim, geopolitical developments, trade policy changes and freight disruptions entered the market’s daily conversation, broadly tracking the pricing and supply-side developments unfolding across the market.

Yet one figure from the LME’s Commitment of Traders report seems surprisingly out of place: the number of “commercial undertakings” holding positions on the exchange.

The number of commercial undertakings, entities whose primary business involves physical production and processing of aluminum, has dropped by nearly a third since the end of May 2025, while the number of financial institutions holding positions has been flat to slightly higher. Since the beginning of this year alone, the number of reporting entities has dropped by about a quarter.

Commercial participation declined even as aluminum prices increased and inventories tightened amid tariffs and supply chain uncertainty. The data does not explain why fewer commercial entities held positions, but the trend stands out because many of the market’s other indicators moved in a different direction.

Position changes

There are four categories of entities that report their trading positions: investment firms or credit institutions, investment funds, other financial institutions, and commercial undertakings.

Investment fund long positions rose from nearly 106,000 lots in the week ended May 30, 2025, to nearly 247,000 lots by the week ended May 29, 2026. Fund short positions dropped during the same year-over-year period. Investment fund short positions are up year-to-date, but nowhere near the levels seen a year earlier. As a share of open interest, the percentage of total active futures contracts held by a specific category of trader, investment funds’ long exposure increased from 10.4% to 22.7%.

That said, the change was not driven by a large increase in the number of reporting investment funds – the number of holders remained close to 300 throughout the last year. In other words, the increase in long positions by investment funds was not the result of a new influx of market entrants taking positions.

“Other financial institutions” showed a similar pattern, with long positions increasing to just under 50,000 lots from a little less than 32,500 lots at the end of May 2025, while the number of reporting institutions remained largely unchanged.

Investment firms, which represent a substantial share of overall market participation, moved somewhat differently. Their long positions declined to a little more than 540,000 lots from a little more than 590,000 lots in the comparable period, while short positions increased to just shy of 610,000 lots from a little more than 510,000 lots last year. However, the number of reporting investment firms rose to 42 from 38 position holders.

Total positions held by investment firms or credit institutions, combined long and short positions, increased over the period, while the number of reporting entities also rose.

That trend contrasted with commercial undertakings, the only category to report a decline in total positions in the most recent Commitment of Traders’ report for the week ending May 29, 2026. The category also reported substantially fewer position holders.

Commercial long positions fell to roughly 250,000 lots from nearly 290,000 lots a year earlier, while short positions increased modestly to around 400,000 lots from just over 390,000 lots. Commercial undertakings’ share of open interest in both long and short positions also declined over the period.

Warehouse inventories

At the beginning of 2025, combined on-warrant and canceled aluminum inventories exceeded 630,000 metric tons. By late May 2025, inventory had fallen below 400,000 metric tons.

Canceled warrants dropped sharply during that period as metal left the warehouse network. Despite those inventory outflows, aluminum prices declined in the spring of that year. In the second half of 2025, on-warrant inventories increased while canceled warrants fell to very low levels, yet prices moved higher throughout most of the period.

On-warrant inventories fell from around 476,000 metric tons in late January 2026 to approximately 273,000 metric tons by mid-March. During the same period, canceled warrants increased from less than 30,000 metric tons to nearly 175,000 metric tons.

Unlike the inventory draw during the spring of 2025, the early 2026 movement aligned with the direction of the market, as prices increased when availability tightened. Warehouse stocks then increased heading into April before resuming their downward trend and reaching multi-year lows most recently.

Investment funds increased long exposure and shed short exposure as inventories tightened and prices moved higher. Investment firms, however, showed no comparable directional shift, with long exposure declining and short exposure increasing despite a modest increase in reporting entities.

Numerous factors could contribute to the divergence, including differing risk-management strategies, investment mandates, or even shifts in capital allocation across the broader base metals complex.

Even so, both categories maintained relatively stable participation and increased their overall activity in aluminum, as measured by the combined total of long and short positions.

Commercial undertakings, on the other hand, reported fewer position holders, lower long exposure and a modest decline in total positions over the same period.

The commercial participation question

Commercial participation data remains difficult to place within that narrative.

A rise in prices does not automatically lead to more hedging activity, nor does a decline in warehouse inventories guarantee more position-taking.

That said, the reduction in commercial position holders seems unusual given recent market developments.

Commercial undertakings can cover producers, consumers, distributors, and numerous other categories of businesses involved in terminal markets, typically for physical hedging.

Producers could reasonably increase short positions in a rising price environment to lock in higher future selling prices, particularly if supply availability appears to be tightening. Consumers, traders or other participants concerned about replacement costs, meanwhile, may increase long positions to hedge against the risk of higher aluminum prices.

What stands out is that commercial short positions increased only modestly over the last year. Investment firms increased short exposure much more substantially, while investment funds reduced short exposure and increased long exposure. Commercial undertakings reduced long positions by the largest percentage among participant categories, while the number of reporting entities declined sharply over the same period.

Granted, while commercial undertakings reported substantially fewer position holders than a year earlier, the decline in total positions was far less pronounced. As a result, average exposure per reporting entity increased considerably over the period, suggesting commercial activity became concentrated among a smaller number of market participants.

Final thoughts

Commodity markets often generate narratives that align with the prevailing market conditions, and the aluminum market displayed many of those characteristics during the past year.

That said, commercial undertakings seemingly remained the exception.

The category reported fewer position holders, lower long exposure, and a modest year-over-year decline in total positions. Nevertheless, commercial undertakings were unusual not only in May 2025 but also across every other participant category in 2026.

In fact, excluding 2025 comparisons entirely, commercial undertakings were the only participant category to reduce short exposure since the beginning of 2026, while their increase in long positions was the smallest of any category over the same period.

In other words, the category’s positioning remained comparatively restrained even relative to the trends observed across the rest of the market since January.

At the same time, the decline in reporting entities far exceeded the decline in overall positioning, resulting in substantially higher average exposure per participant than a year earlier.

Whether that shift is the result of temporary market conditions or a longer-term change in commercial hedging behavior is difficult to determine.

For now, commercial participation figures remain one of the more unusual features of trader commitments for LME aluminum.