The London Metal Exchange has launched an investigation into possible collusion in the aluminium market, which could be behind a steep rise in prices. It is feared that some traders may be acting together to squeeze prices.
The LME, the world's largest non-ferrous market, said it was responding to recent price movements, which has seen the cash price - the price for immediate delivery - shoot up, while stock levels appear to be healthy. It has meant that buying aluminium for delivery now is considerably more expensive than buying for delivery at a future date, which is known as "backwardation".
Kevin Noorish, head of commodities research at Barclays Capital, said: "Backwardation is normally a sign of scarcity but aluminium stocks are extremely high. In these circumstances, market manipulation is always the suspicion and fear."
Most of the dealers that use the LME will be involved in both the physical market in aluminium trading and playing the futures market. A concerted effort to drive up prices would require people colluding in both the physical and the futures market. Aluminium is used by a variety of manufacturers, from aircraft to drink cans.
The exchange said it was immediately reducing the size of trades that must be reported from 100 "lots" (each 25 tonnes) to 1 lot - so that it can monitor trades more carefully. LME trades metals worth some $2,000bn (£1,244bn) a year and aluminium is the most actively traded. The LME said: "The investigation will cover the price curve and its development over recent weeks, LME stock levels and movements both on to and off warrant [a document entitling the owner to physical delivery of aluminium], cancellation of warrants, off-warrant stock levels, individual trading patterns and possible collusion between market participants."
Futures contracts are usually more expensive than the current of a commodity because it costs money to store a good for delivery months or years later. Aluminium for delivery now costs $1,481 a tonne, up from $1,340 at the start of the year. That compares the price for delivery in three months' time of $1,437 a tonne - the gap was even bigger at the end of last week.
Futures markets do legitimately go into backwardation but that happens when there is a physical shortage of a good. LME aluminium stock levels, at some 1.3 million tonnes, are at an eight-year high, so price movements have not reflected the underlying supply/demand situation.
Some traders said the manipulation of the market had long been evident and the LME action was a case of "closing the stable door after the horse has bolted". The Financial Services Authority, the ultimate regulator of the LME, has not, at this stage, begun its own investigation.