In our previous discussion, we explored the concept of theoretical contango and its construction. Let’s quickly recap and expand on this idea with a comparison between aluminium and copper. Aluminium: The Basics of Theoretical Contango: Using aluminium as an example, we started with a cash price of $2,600 per tonne. If you buy aluminium immediately, […]
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You’ve heard about contango, backwardation, and flat curves before, but let’s revisit these concepts, starting with contango. At its core, contango occurs when futures prices are higher than the current (cash) price of a commodity. But how does a contango build up? To explain this, we look at the theoretical contango, a structure driven by […]
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In our last discussion, we explored how a contango situation benefits aluminium producers. To recap, contango occurs when the market price for a future date is higher than the nearby or current price. For producers, this is fantastic. They can sell into the futures market at a higher price. But what does contango mean for […]
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We’ve learned that futures markets can show prices for immediate delivery and prices for a future date. When the prices for a future date are higher than nearby prices, this is known as a “contango” situation. Imagine you’re a producer needing to sell into the futures market to hedge and protect your business. If you’re […]
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In the world of metal trading on the London Metal Exchange (LME), understanding price structures is key. Whether it’s aluminium, copper, or other metals, futures pricing provides valuable insights for hedging and market strategy. Let’s break down the basic concepts: Flat Curve: A flat curve occurs when the price for a nearby date is the […]
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The aluminium futures market operates on a fascinating and highly structured pricing system, offering unparalleled clarity for traders and stakeholders. Here’s a snapshot of how it works: The Futures Timeline: Daily Prices for the Next Three Months Every single working day has a dedicated aluminium price, whether it’s December 9th or February 20th. This allows […]
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The futures market is a fascinating financial instrument that allows traders to lock in prices for commodities on a future date. Today, we’ll dive into the concept of cash settlement and its role in futures trading, using an example involving aluminium. A Quick Recap: Futures Trading Basics Let’s say today is November 28, and you’re […]
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Hedging has been a cornerstone of economic stability for centuries, offering both producers and consumers a way to mitigate financial uncertainty. Let’s embark on a historical journey, beginning 1,000 years ago in China, to see how this financial tool has evolved. Hedging in Ancient China: Securing the Rice Market In ancient China, rice producers and […]
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Aluminium producers face constant price volatility. The London Metal Exchange (LME) plays a crucial role as the global benchmark for aluminium pricing, making it the preferred reference for smelters worldwide. Why the LME matters:For decades, the LME has been recognized as the standard for aluminium prices. Smelters often tie their sales contracts to LME quotations […]
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This week, we’re diving into hedging, a strategy used to protect against risks, unlike speculation, which aims to profit from price movements. We will break it down with an example of an aluminium producer. Speculation vs. Hedging Speculation: A trader starts without a position, choosing to go long (buy) expecting prices to rise or short […]
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