LME aluminium price falls 2% with cash at $3,137/t as backwardation hits 36-year high

The London Metal Exchange (LME) aluminium price chart reported sharp declines on the November 12 trading session after a temporary surge at the November 11 close. While cash plunged over 2 per cent, both near-term and longer-dated contracts posted over 1 per cent dip over the previous session. 

The LME aluminium cash bid as well as offer prices contracted 2.11 per cent day-on-day on November 12.  The bid shifted from USD 3,223 per tonne to USD 3,155 per tonne. The offer price dipped from USD 3,223.5 per tonne to USD 3,155.5 per tonne.

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The LME aluminium three-month bid and offer prices on November 12 reported a 1.04 per cent decline over November 11. The bid slipped from USD 3,062 per tonne to USD 3,030 per tonne, while the offer price decreased from USD 3,064 per tonne to USD 3,032 per tonne.

Both the December 27 bid and offer prices reported a 1.6 per cent slump over the previous session. The bid contracted from USD 2,930 per tonne to USD 2,883 per tonne, and the offer eased from USD 2,935 per tonne to USD 2,888 per tonne.

While LME aluminium prices moved lower on November 12, the market’s cash-to-three-month spread told a different story. The premium for immediate delivery, known as backwardation, widened to USD 176.8 per tonne on Thursday, reaching its highest level since November 1990, or in other words, a 36-year high.

The sharp increase indicates that buyers are paying more out of a sense of stockpiling to secure metal for immediate delivery than for supply scheduled three months ahead.  

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The LME aluminium three-month Asian Reference Price closed at USD 3,030.5 per tonne on November 12.

The expanding backwardation went hand-in-hand with a steep decline in the LME aluminium inventories, which fell over fifty per cent since the monthly average of 498,670 tonnes recorded in January. The availability of deliverable metal is further constrained by the concentration of stocks among a small number of market participants.

As per exchange data, one entity holds 30-39 per cent of the LME aluminium warrants. The remaining on-warrant inventory consists almost entirely of Russian aluminium, limiting the range of readily accessible supply for some buyers. In October, Russian-origin aluminium accounted for 99.98 per cent of the LME aluminium stock.

The LME aluminium opening stocks slipped by 0.06 per cent from 226,850 tonnes to 226,725 tonnes.

Similarly, live warrants plunged from 206,400 tonnes to 206,275 tonnes, down 0.06 per cent.

Cancelled warrants also dropped by 1.25 per cent to 20,075 tonnes from 20,325 tonnes.  

LME alumina Platts price remained stable at USD 398.23 per tonne on November 12.

Under the LME’s existing market safeguards, holders of dominant positions may be required to lend aluminium back to the market at capped rates to prevent excessive concentration from influencing prices.

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