ALUMINIUM: June 1988 – the big squeeze

The London Metal Exchange aluminium contract was ten years old when it saw its first major squeeze. Much like what has happened to the warehousing system over the past several years, the squeeze was able to take advantage of an at-the-time unprepared LME regulatory framework.

“The LME rule limiting the daily backwardation did not exist then – it was created to prevent a repeat of the 1988 squeeze,” industry consultant and veteran LME trader Mark Bodner said.
Additionally, there were no listed warehouses outside Rotterdam at the time, meaning that in order to deliver metal into the backwardation users had to deliver it to Rotterdam.
Clarendon, the trading company started by Marc Rich and the precursor to Glencore, was known to be the big long in the market, and a serious squeeze started to develop – in the absence of today’s LME rules that require long-position holders to lend to the short-position holders.

Those shorts were instead forced...


Jethro Wookey

May 15, 2015

11:05 GMT