London Aluminum Market Faces Supply Squeeze, Spot Prices Hit 30-Year High

Aluminum buyers at the London Metal Exchange (LME) are facing the most severe supply squeeze in decades, with inventories plummeting and most of the remaining stock controlled by two traders. On November 11, the spot price of aluminum surged, reaching a premium of $147 per ton over three-month futures, marking the highest level in over 30 years. This price differential was in a backwardation state in mid-October, but as LME warehouse stocks fell to their lowest level since 1990, the spread sharply widened. The premium for spot contracts is the steepest since the late 1980s, having previously caused the spot-to-three-month spread to exceed $1,000 per ton due to market squeezes. The LME subsequently introduced rules to limit the size of the backwardation market. The backwardation market poses challenges for short position holders, who must either buy back contracts or deliver metal upon expiration.