Bearish weekly close for LME prices while spreads tighten further
Executive Summary
1. LME prices fail to close the week above $1,800 per mton, could retest crucial support at $1,770–$1,745 per mton
LME 3M aluminum prices fell to $1,795 per mton, down 0.3% or $5 per mton from yesterday’s close. Prices resumed losses mainly as the US dollar strengthened amid underlying concerns about world economic growth and geopolitical tensions in the Middle East. Moreover, during after-hours trading, LME aluminum prices fell back to session lows around $1,788 per mton due to an apparent setback in US-China trade talks. Today's bearish weekly close confirms that a medium-term downward trend remains active.
More details in full report.
2. ALUMINUM PRODUCTION UPDATE. World primary aluminum production pauses its expansion as losses from temporary disruptions in China offset gains in ROW. Production remains on track to accelerate toward the end of the year and in 2020.
In August, world primary aluminum production fell at the steepest monthly pace so far in 2019, down by an estimated 0.6% m/m, as losses from production disruptions in China’s Xinjiang and Shandong provinces more than offset gains in the rest of the world. ROW’s production expanded at a six-month-high rate of 0.6% m/m, posting gains across almost every region and expanding annually by 0.7% y/y, according to our assessment. China’s production is on track to recover while ROW’s output accelerates.
More details in full report.
3. LME Cash–3M contango narrows to a new nine-week low as conditions continue tightening ahead of January (unsupportive for premiums).
The Cash–3M contango continued tightening today, narrowing to a new nine-week low of $20.75 from yesterday’s $23.25 per mton, as the backwardation between December 18 (the third-Wednesday contact) and December 20 (today’s 3M contract) intensified to $8.00 from $6.00 per mton. Specifically, the spread between December 10, 2019, and January 15, 2020, stands today at a steep backwardation of $15.00 per mton. As a result, we estimate that the Cash–3M contango is only wide enough for the most competitive players (i.e., those with access to the lowest financing and storage costs) to profitably finance short-term cash-and-carry deals.
More details in full report.
4. RERUN. US FOUNDRY (A356.2) ALERT. Superior Industries to lay off 250 employees at its Fayetteville, AR, plant; bearish for PFA demand and product premiums.
Media reports indicate Superior Industries has just announced it will be laying off about 85% of its workforce (250 employees) from its Fayetteville, AR, plant. The process is expected to take place between November 2019 and June of next year. Downsizing of operations occurs at a time when demand for wheels is in contraction mode. Indeed, we expect regional auto production to decline at least 2.3% y/y in 2019 to 16.8 million units.
More details in full report.
5. China’s aluminum prices ease short-term correction amid fresh stimulus measures.
SHFE November 2019 aluminum prices closed the overnight session up 0.2% at 14,195 yuan per mton ($1,772 per mton, excluding VAT) and extended gains in after-hours until testing 14,245 yuan per mton ($1,778 per mton, excluding VAT). Prices regained some ground amid: a) a reduction in short-term domestic borrowing costs, b) short-covering activity, and c) technical support after nearing a 50-day moving average threshold yesterday. However, prices experienced the steepest weekly drop since early January, down by 1.8% w/w.
More details in full report.