Expecting a Weak Price Rally Ahead (A Weak One)

Executive Summary

1. Aluminum prices fell to a 31 month low in August but failed to break below key $1,745-$1,770 per mton support zone.
   LME aluminum prices fell as world manufacturing contraction deepened while the US dollar rallied to two-year highs. However, aluminum prices were unable to break below the key $1,745-$1,770 per mton threshold.
    

2. We continue to expect prices to bottom out this quarter.
   Indeed, several of our demand leading indicators suggest that conditions are set to improve in the following quarters.
    

3. However, in the very short term, prices are still at risk of a new leg down.
   The third quarter is not over, and LME aluminum prices have not confirmed a bottoming-out pattern yet. In the very short term, prices are still vulnerable to a selling wave that could break below key support at $1,745-1,770 per mton and temporarily push prices down to the next target zone of $1,680 per mton.
    

4. We expect a subsequent weak rally amid poor fundamentals.
   We expect prices to experience a limited rally in Q4 2019 and early 2020, toward the $1,900-2,000 per mton zone, but see any further upside capped by: a) a fragile world economic outlook and weak demand growth rates, b) prolonged downward pressure on smelting costs, and c) the biggest primary aluminum market surplus in a decade.
    

5. Current LME forward prices for 2020 stand below HARBOR’s and Consensus’ base forecasts and are very close to the most bearish forecasts.