The LME aluminum curve structure tells a clear story: physical metal is scarce today, and the forward curve is priced for that tightness to persist. The $110/mt backwardation from cash to three-months is the widest since the 2021-2022 supply crisis and represents a market that is paying handsomely for immediate delivery. Market participants holding physical warrants are extracting premium returns from refinancing and lending operations.
The backwardation has been exacerbated by a decline in LME warrant cancellations. Warrant cancellations — metal earmarked for physical withdrawal — totaled 85,000 tonnes in May, down from 132,000 tonnes in April, suggesting that consumers are drawing down existing stockpiles rather than building new positions at current prices. The remaining live warrants represent just 2.3 days of global consumption.
Regional premiums are responding to the physical squeeze. The European duty-paid P1020 premium climbed to $340-360/mt over LME cash in late May, up from $235/mt in January. In the US, the Midwest premium averaged $0.285/lb in May, driven by tight supply of domestic P1020/P1020A-grade metal as a result of reduced Canadian shipments during the spring melt season.
Japanese buyers concluded Q3 2026 premium settlements at $195/mt over LME cash, up from $175/mt in Q2, reflecting tighter supply conditions in Asia as Chinese semis exports have moderated. The 11.4% sequential increase in the Japan premium is viewed by analysts as a leading indicator for global premium trends in H2 2026.
The backwardation structure penalizes deferred procurement. Buyers should prioritize prompt and nearby-month delivery, accepting the premium for physical availability rather than deferring purchasing. Consider stockpiling at current levels if warehouse capacity allows, as the backwardation is likely to persist until smelter output meaningfully increases or demand softens.