{"id":6449,"date":"2024-12-19T06:17:01","date_gmt":"2024-12-19T06:17:01","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6449"},"modified":"2024-12-19T06:17:24","modified_gmt":"2024-12-19T06:17:24","slug":"hedging-with-jorge-episode18-understanding-theoretical-contango-in-aluminium","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode18-understanding-theoretical-contango-in-aluminium","title":{"rendered":"Hedging with Jorge #Episode18: Understanding Theoretical Contango in Aluminium"},"content":{"rendered":"\n<p>In our <a href=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode-17-understanding-theoretical-contango-in-aluminium-markets\/\">previous discussion<\/a>, we explored the concept of theoretical contango and its construction. Let\u2019s quickly recap and expand on this idea with a comparison between aluminium and copper.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"youtube-embed\" data-video_id=\"l-uHEVOFATA\"><iframe loading=\"lazy\" title=\"Hedging with Jorge #Episode18: Understanding Theoretical Contango in Aluminium\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/l-uHEVOFATA?feature=oembed&#038;enablejsapi=1\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Aluminium: The Basics of Theoretical Contango<\/strong>: Using aluminium as an example, we started with a cash price of $2,600 per tonne. If you buy aluminium immediately, you incur costs such as:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Interest Rate: <\/strong>At a competitive 6% annual rate (equivalent to 0.5% per month), this adds $13 per tonne.<\/li>\n\n\n\n<li><strong>Storage Costs:<\/strong> Warehousing typically costs $15 per tonne per month.<\/li>\n\n\n\n<li><strong>Insurance:<\/strong> A small addition, approximately $1 per tonne per month.<\/li>\n<\/ol>\n\n\n\n<p>Together, these costs amount to $30 per tonne per month. Over three months, this totals $90, yet contango in aluminium markets often doesn\u2019t reflect such high differentials.<\/p>\n\n\n\n<p><strong>Copper: A Similar Framework, Bigger Numbers: <\/strong>Switching gears to copper, which trades around $9,000 per tonne, the calculations differ slightly:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Interest Rate: <\/strong>At 0.5% per month, this contributes $45 per tonne.<\/li>\n\n\n\n<li><strong>Storage Costs: <\/strong>At 55 cents per day per tonne, this adds roughly $15 per month.<\/li>\n\n\n\n<li><strong>Insurance:<\/strong> A modest $2 per tonne per month.<\/li>\n<\/ol>\n\n\n\n<p>Combined, these costs reach $62 per tonne per month. Over three months, the total reaches $186, significantly higher than aluminium\u2019s equivalent.<\/p>\n\n\n\n<p><strong>What This Means for Contango:<\/strong><br>The key takeaway is that neither aluminium nor copper markets currently reflect such high theoretical contango levels. Factors like market demand, supply dynamics, and speculative activity often lead to lower observed contango than theoretical calculations suggest.<\/p>\n\n\n\n<p>Stay tuned as we dive deeper into these market mechanics and continue to demystify the construction and behavior of contango in upcoming discussions!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In our previous discussion, we explored the concept of theoretical contango and its construction. Let\u2019s quickly recap and expand on this idea with a comparison between aluminium and copper. Aluminium: The Basics of Theoretical Contango: Using aluminium as an example, we started with a cash price of $2,600 per tonne. If you buy aluminium immediately, [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-6449","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-open-forum-for-aluminum-community-blog"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Hedging with Jorge #Episode18: Understanding Theoretical Contango in Aluminium<\/title>\n<meta name=\"description\" content=\"A recap and expand on this idea with a comparison between aluminium and copper.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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