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A Shot Across The Bow April 26th, 2019 by John Gross

In naval parlance, this is a warning. In metal markets, it’s pretty much the same thing.

Over the past several weeks, markets have been emitting signals in the form of narrowing spreads, or in some cases a backwardation structure.

Generally speaking, a backwardation occurs when nearby prices are higher than forward prices, often times reflecting tightness in market conditions, that may lead to higher prices.

Over the past two weeks, the April / May spread on Comex ranged from a +10 point contango, to an 80 point backwardation – until Friday, when it flared out to -8.35¢.

The other way of saying this, is that the April contract rose 9.25¢ to close at $2.9700, while the May contract increased 2.50¢ to settle at $2.8865.

It was noted last week that the Cash to 3s in London was in a back most of March; reverted to a contango during April, but here too, it settled at a $5.00 back on Friday.

Aluminum, lead and nickel have been in a narrowing contango, while tin and zinc are both in a deep backwardation.

To help explain what is going on, take a look at the first chart in this week’s report. As you can see, total inventories of nonferrous metals have been declining over the past six years, and now stand at levels not seen since 2008.

No matter how you analyze things, there isn’t much metal left, and the market is telling us not to ignore it.


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