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LME inventories up in November the most in eight years; Brazil's demand and P1020 premiums depressed

Executive Summary

1. LME INVENTORIES UPDATE. LME aluminum inventories experiencing their largest monthly surge in eight years amid steep nearby backwardations and a surplus in Western World primary aluminum market.

LME warehouses in Asia registered today a 50,950 mton aluminum inflow. As a result, inflows over the last ten consecutive days now total 314,250 mton buildup over the same period, driving LME aluminum inventories to a new six-month high of 1,230,025 mton. LME aluminum inventories are up 270,975 mton, 28% m/m, which is the largest monthly surge since December 2011. The spike in inflows continues to be triggered by a steep December–January backwardation. Massive buildups are also the result of an oversupplied primary aluminum market in the Western World.

More details in full report.

2. LME prices continue to range-trade around the $1,740 per mton threshold.

LME 3M aluminum prices closed marginally lower at $1,736 per mton, down 0.2% or $3 per mton from Friday. Prices continued to struggle to sustain levels above $1,740 per mton, pressured down by another significant inventory buildup in Asian LME warehouses and a stronger US dollar. Nevertheless, the downside was limited to an intraday low of $1,733 per mton amid trade optimism, Friday’s better-than-expected manufacturing activity data, and some technical buying. Price behavior remains somewhat erratic around the $1,740 per mton threshold.

More details in full report.

3. LME Cash–3M backwardation eases, but December–January tightness remains considerable (bearish spot premiums).

The Cash-3M "back" continued to ease from last week’s ten-month peak, settling today at $9.00 per mton from prior backwardation of $12.00 per mton on Friday and as wide as $13.50 per mton on Thursday. This was mainly the result of a smaller, but still considerable, December–January "back," which eased to $13.75 per mton from $15.00 per mton on Friday. Still, the Cash–3M backwardation remains short-term bearish for spot premiums around the world.

More details in full report.

4. BRAZIL P1020 ALERT. Domestic producers long and looking for exports amid depressed local market demand and a weak currency.

Brazilian P1020 producers seem to be increasingly looking for spot export opportunities, mostly through traders, to improve their cashflow position before the end of the year at a time when there is demand weakness in several aluminum intensive sectors, such as automotive production and B&C, and the Brazilian real depreciation against the US dollar is nearing historic lows.

More details in full report.

5. BAUXITE ALERT. EGA to supply bauxite to Xinfa from its Guinean mine.

Emirates Global Aluminum announced today that it has signed a five-year "multi-million mton" bauxite supply contract with Chinese aluminum producer Xinfa Group. The Chinese company produces about 12.5 million mtpy of alumina and consumes more than 30.0 million mtpy of bauxite. Meanwhile, EGA's bauxite mine has a designed production capacity of 12.0 million mtpy. With the supply agreement, Xinfa Group secures bauxite for its alumina refineries at a time when there is a domestic deficit in China.

More details in full report.

6. China’s aluminum prices remain stuck within the 200-day moving average zone.

SHFE December 2019 aluminum prices closed the overnight session practically unchanged at 13,955 yuan per mton ($1,755 per mton, excluding VAT). Prices were supported by trade optimism regarding a US-China trade deal and ongoing domestic inventory withdrawals but faced some downward pressure from market talk of declining alumina prices. SHFE aluminum prices remain capped by the 200-day moving average zone, which stands within 13,900–14,000 yuan per mton ($1,750–$1,760 per mton, excluding VAT).

More details in full report.