There have been a significant number of large backwardations on London Metal Exchange futures contracts throughout 2019 and questions have been raised about whether the exchange's spreads truly reflect the fundamentals of the market.
LME chief executive officer Matthew Chamberlain has said the exchange is monitoring the situation and has not heard any outcry from the market looking for things to change.But proposed reforms to LME warehousing could change things for the better."We recognize the situation and we are taking it seriously, but right now we do not hear a pressing call for change," Chamberlain told Fastmarkets. "I do not think it is an issue about market orderliness. It is more to do with technical and fundamental backwardations."A fundamental backwardation is a genuine backwardation driven by supply and demand characteristics of that specific price, whereas a technical backwardation is more indicative of being driven by the exchange's environment, such as stock levels or position holders on the LME.The LME cash/three-month nickel spread had been trading in an intermittent backwardation since January 2019 before slipping into a lengthy backwardation on August 14, starting at $39...