Aluminum buyers on the London Metal Exchange are facing the most severe squeeze in decades as inventories backing contracts plunge and much of the remaining stock comes under the control of just two traders.
Spot prices for the crucial industrial metal spiked to trade $151 a ton above benchmark three-month futures on the exchange on Wednesday, hitting the highest level on record in data spanning more than 30 years. The spread was trading at a discount as recently as mid-October, but it has corkscrewed higher as stockpiles in LME warehouses have plunged to the lowest level since 1990.
The premiums for spot contracts, known as backwardation, are the steepest in the LME aluminum contract since the late 1980s, when Marc Rich Co squeezed the market, pushing the cash-three-month spread above $1,000 a ton. Since then, the LME has introduced rules that force traders with large positions to lend them out, effectively putting a cap on the scale of backwardations.
Backwardations can cause major commercial challenges for holders of short positions, who must either buy back their contracts or deliver metal against them at expiry.
A one-day spread known as Tom/next, which effectively represents the cost of deferring that obligation to deliver metal by a day, traded at the biggest premium since 2021, signaling an intensifying tussle over the dwindling volume of metal that’s left in exchange warehouses.