The cash aluminium contract on the London Metal Exchange traded at its biggest premium over the three-month forward in 36 years on Thursday, with the backwardation pointing to acute near-term tightness in the market.
The cash-to-three spread CMAL0-3 last traded at a $176.80 per metric ton backwardation — a market structure where prices for prompt delivery are higher than those for future delivery — to hit its steepest since November 1990.
Analysts say the spike has been driven by low LME inventories, which have more than halved since January to 226,350 tons.
Available, or on-warrant, LME stocks are almost exclusively Russian aluminium.
“If you think about it, the LME aluminium price is effectively the price of the Russian metal now because it’s the only origin there,” said Wood Mackenzie analyst Uday Patel.
Benchmark three-month LME aluminium CMAL3 was trading down 1.4% at $3,027 a ton as of 1312 GMT on Thursday.
One entity holds 30-39% of the LME aluminium warrants, exchange data shows, exacerbating the sense of tightness.
Short-position holders on the November aluminium contract will have to roll over their positions or deliver at settlement next week.
The aluminium curve on the Shanghai Futures Exchange is also backwardated, with the November contract trading at a 350 yuan ($52.50) a ton premium to the December contract.
($1 = 6.6679 Chinese yuan renminbi)
(Reporting by Tom Daly, Pratima Desai and Polina Devitt, Editing by Louise Heavens and Tomasz Janowski)
