I was reading an article and it states

Tightness has returned to the London Metal Exchange (LME) aluminium spreads.

The focus point this time around is the December-January spread (CMALZ4-F5), which flared into $25 per tonne backwardation late last week.

That was acute enough to pull the full benchmark cash-to-three-months period into the widest backwardation since December 2012.

Basically, what does it mean by an aluminium spread, and what does it mean by the spreads are getting tighter? I don't really understand what backwardation means.

Also, what does "cash-to-three-months period into the widest backwardation" mean?


1 Answer 1


The aluminum generally trades in contango, meaning that the longer the maturity of the future contract (i.e. the farther in the future the delivery date) the more expensive the contract. A simple explanation is that to deliver aluminum to you in 5 years, I need to buy the aluminum now at whatever the current price is and store it for 5 years, which has a cost.

However at the end of October the maturity curve looked like this:

enter image description here

So although the long term trend was in line with theory there was a local anomaly and the January 15 contract closed at $ 2047 /MT vs. $ 2066 /MT for the December 14 contract. The spread in that context is simply the price difference between the two contracts. According to the article the spread went as high as $25 intraday.

The "cash-to-three-months benchmark" is the spread between the spot price and the 3 month future contract.

For non seasonal commodities, that kind of anomaly is generally due to a local shortage of supply which makes getting the product sooner more difficult.

Wikipedia has more on backwardation and contango.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .