LME price target of $1,700 per mton averted for now; Billet premiums in Mexico poised to fall ahead; Primary aluminum production to expand in Kazakhstan
Executive Summary
1. LME 3M prices post second-consecutive positive close price above $1,770 per mton but closed down after-hours trading. Jury is still out for new downward leg toward $1,700 per mton.
Prices outperformed and extended yesterday’s gains. LME 3M aluminum prices closed the session marginally higher at $1,784 per mton, up 0.2% or $3 per mton from yesterday. In intraday terms, prices managed to rebound later in the session supported by apparent buying triggered after nearly testing their $1,770 per mton key support threshold and a weaker US dollar. However, in after-hours trading, LME 3M prices closed down. Key support at $1,770 per mton reinstated, but a medium-term bearish formation remains. Monday’s breach below key threshold appears for now to have been a false signal, yet technical support seems fragile.
More details in full report.
2. Eurasian Resources Group plans doubling primary aluminum capacity in Kazakhstan.
Reports suggested today that Eurasian Resources Group (ERG) plans to expand primary aluminum capacity at the Pavlodar smelter in Kazakhstan to about 500 kmtpy, practically doubling its current capacity. We understand the expansion would be completed by 2021 and could require an investment of about $800 million. The smelter produced 258 kmton of primary aluminum in 2018 (mainly in the form of remelt ingots) and operated last month at a production cash cost of $1,489 according to our estimates. This brownfield expansion along with a greenfield expansion in Russia reinforce our expectations for ROW’s production growth to remain significant in the coming years.
More details in full report.
3. MEXICO BILLET ALERT. Mexican billet buyers out of the market for Q3–Q4, premium offers fall below $335 per mton FCA Veracruz
Our intel from the ground indicates almost all major domestic billet buyers will be out of the contractual market for the balance of the year. In the same vein, spot billet activity is basically nil. As we promptly reported the Mexican market seems long billet, P1020 and scrap, at a time when at least a couple of consumers are favoring internal cast house production and lowering their third-party billet intake. Spot and quarterly premiums are set to fall.
More details in full report.
4. EUROPEAN BILLET UPDATE. European primary billet plants face critical deadlines.
Alcoa’s Aviles, La Coruna, and Bosnia’s Aluminij are facing critical deadlines this month. Alcoa has reached agreement in principle to sell Aviles and La Coruña plant to Parter Capital Group (Swiss fund), just in time before the June 30 pre-agreed deadline before further layoffs, pre-retirement, and internal employee relocations take place, along with the definitive closure of the electrolysis production at both plants. Conversely, Bosnia’s Aluminij primary billet production remains at risk as its power supply ends late this month, which seems to be pushing the company to talk with a major trading company to potentially help them avoid bankruptcy.
More details in full report.
5. LME Cash–3M contango narrows to a two-week low but still profitable for forward financing of metal (supportive for spot premiums).
The LME Cash–3M contango tightened today to a two-week low of $26.75 from $29.25 per mton yesterday. The Cash–July contango narrowed to $9.75 per mton, the July–August contango eased to $10.75 from $10.50 per mton, and the August–September contango narrowed to $8.50 from $8.75 per mton. However, most of today’s tightening seems to be related to the emergence of a brief backwardation of $2.25 per mton between September 18 and September 19 (around September’s third-Wednesday prompt). Nevertheless, 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.
6. China’s aluminum prices regain some ground but still testing levels below their 200-day moving average threshold.
SHFE two-month aluminum prices closed the overnight session up 0.8% at 13,855 yuan per mton ($1,776 per mton, excluding VAT), sustaining yesterday’s gains amid improving optimism toward upcoming US-China trade talks. In after-hours trading, prices outperformed the Shanghai base metals complex and tested levels just above 13,900 yuan per mton ($1,782 per mton, excluding VAT) amid gains in LME aluminum prices. SHFE aluminum prices are still trading below key technical threshold, the 200-day moving average that stands near 13,950 yuan per mton ($1,790 per mton, excluding VAT) but have not yet confirmed a technical breakout of this level.
More details in full report.