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LME prices close week below key threshold; Alumina prices in free fall; China’s demand deteriorates further

Executive Summary

1. LME prices plunge again below the key $1,770 per mton threshold, confirmation of a new leg down (ultimately targeting $1,550 per mton) could occur on Monday.

LME 3M aluminum prices closed the session at $1,764.50 per mton, down by 1.3% or $22.50 per mton from yesterday and only marginally higher than last Friday (when they closed at a twenty-nine-month low of $1,764.00 per mton). Today, aluminum prices underperformed the industrial commodities complex, testing intraday levels as low as $1,758 per mton, as a result of: a) sharp declines in alumina spot prices, b) China’s industrial production growth weakening in May to the slowest pace in over a decade, and c) the US dollar rallying to a two-week high. Another bearish close on Monday could unleash a new ultimate price target of $1,550 per mton and establish a new trading range of $1,770–$1,550 per mton.

More details in full report.

2. ALUMINA ALERT. Alumina prices plummet (as anticipated); bearish for LME prices.

Alumina spot prices fall to $339 per mton, a twenty-two-month low. As HARBOR anticipated, Australia alumina spot prices have continued to decline on a well-supplied market. Spot prices are expected to fall to as low as $250–$270 per mton at some point in the next twelve months as the market experiences a growing surplus. With the confirmed restart of the Alunorte refinery in Brazil and production expansions in China and the Middle East, the world's alumina market is expected to switch to a surplus of 2.8 million mton in 2019 (from a deficit of 0.4 in 2018).

More details in full report.

3. CHINA DEMAND ALERT. China's demand growth deteriorates the most since 2002, bearish for yuan and LME prices.

China's industrial production grew in May at the softest pace in over a decade, up only 5.0% y/y (at the slowest pace since 2002), according to data released today by the National Bureau of Statistics. Fixed asset investments deteriorated as well, growing at an eight-month-low annual rate of 5.6%. Additional Chinese economic data released at the end of last month indicated that domestic manufacturing activity returned to contraction territory in May; this scenario suggests China's end-user demand is struggling to regain momentum and raises expectations for monetary easing measures—which is bearish for LME prices.

More details in full report.

4. China’s aluminum prices reach a two-month low amid downbeat economic data, could unleash a new downward leg next week.

SHFE two-month aluminum prices closed the overnight session down 0.4% at 13,955 yuan per mton ($1,783 per mton, excluding VAT) and extended their losses in after-hours until hitting a two-month intraday low of 13,870 yuan per mton ($1,772 per mton, excluding VAT). A new downward leg toward 13,500 yuan per mton ($1,725 per mton, excluding VAT) could be unleashed next week if aluminum prices in China confirm a break below the key technical support threshold around 13,970 yuan per mton ($1,785 per mton, excluding VAT).

More details in full report.

5. LME canceled warrants rise again in Malaysia; New load out queues emerge across Asia.

LME aluminum live inventories (i.e., inventories excluding canceled warrants) fell to their lowest mark in one month today, to 681,550 mton as a result of a spike in warrant cancelations (booking for potential warehouse withdrawal) of 24,500 mton across LME warehouses in Johor, Malaysia (22,500 mton), and Singapore (2,000 mton). As a result, total LME aluminum canceled warrants increased to 383,075 mton or 36% of total LME aluminum inventories. Lengthy load out queue in Port Klang continues, while additional queues have emerged across Asia.

More details in full report.

6. LME Cash–3M contango loosens further to a three-week peak amid wide June–August contango (supports spot premiums).

The LME Cash–3M contango widened today to a three-week high of $31.75 from yesterday’s $30.00 per mton, mainly as a result of a widening July–August contango to $11.00 from $10.00 per mton, while the June–July contango held unchanged at a record- high peak (for this spread) of $12.00 per mton. As a result, we estimate that the Cash– 3M contango continues to be supportive for spot premiums, as it is wide enough for most players to profitably finance short-term cash-and-carry deals.

More details in full report.