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LME prices test $1,850 per mton but medium-term downtrend remains; Aluminij’s smelting curtailment materializes (impact seen mitigated by regional billet oversupply)

Executive Summary

1. LME prices climb to the expected short-term target of $1,850 per mton; stronger technical selling seems likely ahead given a prevailing medium-term downward trend.

LME 3M aluminum prices closed the session at $1,850 per mton, up 1.6% or $29 per mton from yesterday, as the base metals complex rallied on: a) WTI oil prices rallying by 4% amid supply concerns in the Gulf of Mexico; b) comments from the Fed chairman bolstering expectations for an interest rate cut later this month; and c) optimism for the start of a new round of talks between US and Chinese officials. Our anticipated short-term target of $1,850 per mton was reached today; stronger selling pressure could emerge at current levels. LME 3M aluminum prices have registered gains of as much as 4.4% over the past week, now testing resistance around their 100-day moving average threshold.

More details in full report.

2. BOSNIA ALUMINUM UPDATE. Aluminij’s primary aluminum production shutdown materializes amid overdue electricity bills; regional oversupply seen mitigating the market impact.

According to media reports, the Aluminij Mostar smelter in Bosnia stopped receiving electricity from its power supplier just before midnight, triggering the plant’s shutdown procedure. The company had been facing power supply issues in recent months because of overdue electricity bills and is still in the process to find an investor that would support its financial restructuring and help with an eventual restart. Primary aluminum production losses amount to around 75 kmtpy (mainly billet). Nevertheless, underlying regional billet oversupply is expected to mitigate this curtailment.

More details in full report.

3. SPAIN ALUMINUM UPDATE. Alcoa’s San Ciprian smelter to reduce electricity usage; marginal production loss likely.

According to media reports, the 228 kmtpy smelter would reduce the intensity of its power usage by about 5%. This reduction could result in a primary aluminum production loss of about 10 kmtpy, according to our estimates. We understand the San Ciprian smelter has operated practically at its nameplate capacity of 228 kmtpy, producing mainly billet and slabs. Reports suggest that billet production would not be affected.

More details in full report.

4. HARBOR FIRST. Peter Smith, US veteran marketer of primary foundry aluminum, joins Rusal America.

HARBOR has learned and confirmed that: a) RUSAL America has hired Peter Smith as its new Senior Sales Manager for its Primary Foundry aluminum (PFA) business, effective August 1, 2019; b) Peter Smith has thirty-five years of sales experience in the industry; c) Since 2001, Peter Smith was responsible for carrying out Alcoa's North American foundry tee and ingot sales, which together added up to more than 100 kmton in 2018 (per HARBOR's estimates); d) RUSAL America makes this new key hire as it continues to revamp its North America sales team.

More details in full report.

5. LME Cash–3M contango widens from a two-month low; concentration of dominant warrant holdings reduced.

The LME Cash–3M contango eased to $17.00 per mton from yesterday’s two-month low of $14.00 per mton as contangos widened after July: the July–August contango eased to $9.00 from $8.50 per mton, the August–September contango widened to $4.00 from $2.00 per mton, and the September–3M contango eased to $1.50 from $1.00 per mton. However, we estimate that the Cash–3M contango continues to be unsupportive of cash-and-carry deals for most players (bearish for spot premiums as the financing of metal becomes uneconomic). Concentration of live inventory holdings eased slightly, but could still could create some nearby tightness ahead.

More details in full report.

6. China’s aluminum prices climb toward key resistance threshold; technical momentum remains to the downside.

After closing the overnight session virtually unchanged at 13,760 yuan per mton ($1,772 per mton, excluding VAT), SHFE two-month aluminum prices climbed by about 1.0% to approach their 200-day moving exponential average (which stands around 13,950 yuan per mton or $1,795 per mton, excluding VAT) for the first time in three weeks. Prices were buoyed by fresh buying activity across the Shanghai base metals complex, optimism around resuming US-China trade talks, and a stronger yuan against the US dollar. Still, SHFE aluminum 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.