Aluminium producers, consumers wary of spread volatility effects

Aluminium producers and consumers have become wary of the effects of volatile spreads on the London Metal Exchange aluminium forward curve, and are having to make their sales teams aware of potentially expensive requests from customers.

A very big long position of over 40% of the open interest on the LME’s October prompt date has seen backwardations swing out on a number of forward dates, while the cash-to-three-months spread has stated to tighten again.
The cash-to-three-months aluminium spread stood at $27 per tonne on August 19, having hovered around $40 per tonne since mid-May, following a period of severe volatility over the preceding 12 months.

Tight or backwardated spreads discourage people from holding metal as it becomes costly to do so when it is either losing value or not gaining value fast enough to cover storage and interest costs. With their profitability gone, many storage deals are unwound and the metal is made available...


Jethro Wookey

August 20, 2015

12:59 GMT