The London Metal Exchange (LME) is closely monitoring the aluminium market, which has recently experienced a significant spike in the premium for the October contract. The premium over the November contract surged to $18 per metric ton from $5.85 three weeks ago and a discount of $17.50 in July. This condition, known as backwardation, typically indicates tight near-term supply.
The benchmark LME aluminium contract rose by 1.2%, reaching a near four-month high of $2,680 per ton following the LME’s announcement of its market monitoring efforts. Traders anticipate further price increases as the October expiry approaches, particularly if those holding short positions scramble to cover their contracts.
Data shows that one party holds a long position in the October contract, accounting for over 40% of market open interest, while five short positions each represent up to 9% of the open interest. The situation is complicated by the concentration of LME aluminium inventories in Port Klang, Malaysia, which holds 74% of total stocks. Approximately two-thirds of these inventories are being prepared for delivery, resulting in a shortage of available stocks.
Additionally, the warehousing company ISTIM has raised fees for canceling delivery notices or re-warranting stocks to a maximum of $27.50 per ton, significantly higher than the $5-$10 fees charged by other warehouses. This increase has made it costly for financiers looking to deliver metal, potentially exacerbating supply issues.
The LME has stated that it prohibits unreasonable charges for depositing metal and will investigate any concerns brought to its attention.