LME Aluminum 3M Select trades $-4.75 lower to $3058 at 8:46:45 AM
(Bloomberg) – The aluminum market is in the grips of a major supply squeeze fueled by declining stockpiles of the crucial industrial commodity, with buyers facing rising prices for spot metal and little immediate prospect of relief.
The crunch is playing out on exchanges in London and Shanghai, with both markets exhibiting a pricing structure known as backwardation, where spot metal trades at premiums to later-dated futures due to constraints on immediate delivery. The pressure comes after a sharp decline in inventories backing the contracts, with London Metal Exchange stockpiles slumping 56% this year to the lowest level since 1990.
Traders and manufacturers in the aluminum industry are being whipsawed by the moves, as buyers await a surge in output from Indonesia that’s set to push the global market into surplus in the coming years. That prospect has weighed heavily on prices over the past few months, but the reality for buyers in need of spot metal is that supply constraints could yet get worse before the new shipments arrive.
“The backwardation is really a reflection of how tight the physical market is right now,” said Ewa Manthey, commodities strategist at ING Bank NV. “There aren’t many obvious sources of metal that can quickly make their way onto the LME.”
On the LME, spot contracts have surged this month and were trading at a premium of as much as $101.50 a ton over three-month futures on Monday, nearing a multiyear high seen earlier this year as the outbreak of war in the Middle East throttled shipments from the region. Gulf suppliers have since found logistical workarounds that have softened the supply blow, but export routes are now costlier, riskier and longer. Some smelters in the region are still recovering from direct attacks on their plants in the early stages of the war. Typically, steep spot premiums fuel a scramble to deliver metal into exchange warehouses, as the high prices create an incentive for traders to offload any surplus metal on to the LME. But lingering constraints on Middle Eastern supplies — combined with a regulatory cap on Chinese aluminum production and trade barriers that are also fueling tightness in the US and Europe — mean that there’s little excess stock available in the physical market to replenish supplies.
While Indonesian supply is already starting to surge — helping to tilt the physical market towards surplus — its metal isn’t yet registered for delivery on the LME. And for now, producers elsewhere can still make bigger profits selling to end users in Europe and the US who are paying large premiums on top of futures to secure supplies, even in a lackluster environment for demand.
“That could mean the backwardation needs to widen further to attract metal into LME warehouses,” said Manthey at ING. “Further out, though, we see more downside risks for aluminium prices.”
For holders of short positions, backwardations can prove painful by forcing them to roll contracts at a loss if they’re unable to deliver metal against them. But the pricing structure is a boon for holders of long positions, who can make big profits by rolling them forward. There are four unidentified holders of long positions collectively equating to at least 25% of the outstanding open interest in November aluminum contracts on the LME, which will mature next week, data from the exchange show.
In the near term, the key question is how big the backwardation will need to get to incentivize them to roll those positions forward, and bring relief to holders of November short positions who may struggle to secure metal to deliver against their contracts. But in the longer term, the price curve for LME futures indicates that the supply tightness could persist for months to come, with contracts trading in backwardation through to 2028.
LME Copper 3M Select trades $89 higher to $13858 at 8:46:43 AM
CME HRC Steel last traded at $1357 and $0 lower at 11/6/2026
