Morgan Stanley: Aluminum supply tightness reflected in price structure, not a spike in spot prices

The bank’s analysts stated: “The rapidly tightening aluminum market is causing investors to question why the price of aluminum on the London Metal Exchange hasn’t seen a larger increase.” The spread between spot and futures prices and regional premiums more clearly reflect this tightness, with the spot-to-three-month aluminum spread at its highest level since 2007. Nevertheless, the impact of supply constraints is being partially offset by relatively weak demand dynamics. Elevated spot prices are dampening purchases, while the steep forward curve is increasing the cost of holding inventory, prompting end-users to destock. In some cases, industrial users are also switching materials, substituting aluminum with steel or copper in certain applications. LME three-month aluminum futures rose 1.4% to $3,550 per ton.