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LME prices still facing resistance at $1,800 per mton; ABI restart a bearish factor for billet premiums; Rusal confirms definitive agreement to invest in Braidy Atlas

Executive Summary

1. LME prices remain unable to consolidate above the $1,750–$1,800 per mton trading range as the US dollar rallies.

LME 3M aluminum prices closed the session at $1,803 per mton, down 0.2% or $4 per mton from yesterday but marginally higher in weekly terms (up 0.2% w/w). After closing on Thursday at a one-week low of $1,807 per mton, prices dropped today to levels as low as $1,791 per mton as: a) the US dollar strengthened to a two-week high due to stronger-than-expected US jobs data, and b) German factory orders declined by much more than expected in May. Today’s robust US jobs report was bullish for the US dollar, as it dimmed expectations for the Fed to aggressively cut interest rates later this month (unsupportive for commodities). Attempts to consolidate above the $1,800 per mton mark appear to remain unsuccessful.

More details in full report.

2. US BILLET UPDATE. Bearish pressure is expected on US annual and spot billet premiums amid ABI restart and multiple supply expansions.

The ABI smelter’s restart is expected to push spot billet premiums down by at least another 1.0 cent/lb before the end of the year. Likewise, the plant’s ramp-up should pressure down 2020 contract billet premiums even more as this smelter should bring back about 120 kmton of additional primary billet units to the market once it reaches its full production at some point next year. Furthermore, now that Canada is exempted from the US Section 232 import tariffs, we expect Canadian producers to aggressively market their billet units in Canada and the United States in order to regain lost market share to offshore producers in both countries this year.

More details in full report.

3. US ROLLING MILL UPDATE. Rusal officially confirms the signing of a definitive agreement to invest $200 million in Braidy Atlas and a ten-year contract to supply 2.0 million mton of its low-carbon primary aluminum.

The company confirmed that definitive transaction documents are in line with the Letter of Intent signed last April, according to an official update filed today to the Hong Kong Stock Exchange. As specified in the LOI signed on April 13, Rusal will invest $200 million, obtain a 40% share in the Braidy Atlas mill, and become its exclusive supplier of primary aluminum, providing around 2.0 million mton of its low-carbon primary aluminum ALLOW brand over a period of ten years.

More details in full report.

4. ROLLED PRODUCTS UPDATE. European Union antitrust regulators send statement of objection to Novelis this past Monday; Novelis needs to responds within two weeks.

This past Monday, EU antitrust regulators sent Novelis a charge sheet, known also as a statement of objection, in which they outline their concerns over the acquisition and highlight in particular the potential impact to automakers. Novelis will have two weeks to respond to these concerns. The EU Commission will make its final decision by September 16. Novelis stated in a Bloomberg interview that it will be “working constructively with the commission to conclude its investigation and to closing the transaction in a timely manner.”

More details in full report.

5. LME Cash–3M contango narrows as the July–September segment tightens.

The LME Cash–3M contango tightened to $19.00 per mton from $22.75 per mton, as nearby contangos narrowed all the way through September: the Cash–July contango narrowed to $3.00 from $3.50 per mton, the July–August contango shrank to $8.50 from $10.00 per mton, and the August–September contango tightened to $5.00 from $6.75 per mton. As a result, we estimate that the Cash–3M contango is no longer supportive of cash-and-carry deals for most players at today’s level (bearish for spot premiums as the financing of metal becomes uneconomic).

More details in full report.

6. China’s aluminum prices recover some ground amid expectations of demand stimulus.

SHFE two-month aluminum prices closed the overnight session at 13,805 yuan per mton ($1,755 per mton, excluding VAT), which was 1.1% above Wednesday’s three-month low close of 13,650 yuan per mton ($1,755 per mton, excluding VAT). Prices were bolstered during the second half of the week by rumors that the government will continue to implement measures to boost infrastructure investment. However, in weekly terms, aluminum prices still ended the week with marginal losses, driven by mounting concerns regarding China’s ongoing manufacturing activity contraction. SHFE prices remain in a short- term technical downward trend targeting 13,500 yuan per mton ($1,740 per mton, excluding VAT).

More details in full report.