Basis Price

consists out of a premium or discount to the outright price¹⁾

determined by various factors like the location and quality of a commodity²⁾

factor quality influences the basis (parties are generally willing to pay more or less depending on the commodity grade)³⁾

when a futures market is in contango, premiums tend to increase (parties start buying physical material to benefit from contango)⁴⁾

traders prefer to have the materials at locations where it can be delivered to the exchange or in regions where their off-takers are located (demand for material at a specific location can increase leading to a higher basis)⁵⁾

cannot always be hedged via futures⁶⁾

backwardations generally lead to weakening premiums, as it is more expensive to hold material⁷⁾

materials can be sold via forward sales contract that includes a fixed basis price (basis not exposed to price fluctuations)⁸⁾