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China's Yunnan to increase aluminum production by as much as 3.8 million mtpy; LME spreads tighten and pressure down premiums; Europe ́s foundry 2020 contract premiums down

Executive Summary

1. CHINA ALUMINUM ALERT. Yunnan province expected to increase production by as much as 3.8 million mtpy (with half of it being hydropower-based).

Shandong Weiqiao Group is discussing with authorities the development of a 2.0 million mtpy hydropower and primary aluminum project in the Wenshan prefecture. HARBOR understands that this expansion project has gained the support of the Yunnan government but is still under environmental assessment. Moreover, at least three other companies are already building new primary aluminum smelting capacity in Yunnan, totaling at least 1.8 million mtpy. HARBOR estimates that just in the next twelve months, around 1.5 million mtpy of new operating capacity in Yunnan province could hit the market.

More details in full report.

2. LME prices increase amid US dollar weakness, but technical downward trend is still in place (targeting $1,680 per mton).

LME 3M aluminum prices closed the session up 0.5% or $8 per mton at $1,728 per mton. Prices were underpinned by a weaker US dollar, which weakened late in the session due to expectations of a breakthrough in Brexit negotiations. However, earlier in the session, prices had briefly retested yesterday’s intraday low of $1,710 per mton amid continuing LME inventory buildups in Asia and downbeat macroeconomic sentiment. Prices remain in a technical downward trend targeting $1,680 per mton.

More details in full report.

3. LME Cash–3M contango narrows slightly as tight conditions persist between November and January (bearish premiums).

The Cash–3M contango narrowed to $10.50 per mton, from yesterday’s $10.75 per mton, mainly as a result of a slight steepening in the January–3M backwardation to $6.00 from $5.25 per mton. The November–December contango held at $3.50 per mton, but the Cash-November contango widened to $13.00 from $12.50 per mton. Still, at the current level, the Cash–3M contango remains unsupportive of cash-and-carry deals (bearish for spot premiums).

More details in full report.

4. EUROPE PFA UPDATE. Foundry 2020 contract premiums fall to as low as 310 euros per mton

Confirmed European 2020 full PFA (A356.2) contract premiums range between 310–330 euros per mton ($341–$363 per mton) after falling in some cases by more than 60 euros y/y to new multi-years lows due to contracting automotive demand and uncertain expectations for 2020. As a reference, 2019 contractual premiums delivered were mainly closed between 360–400 euros per mton ($400–$450 per mton).

More details in full report.

5. China’s aluminum prices up from yesterday’s three-month low, keep trading near key support zone.

SHFE two-month aluminum prices closed the overnight session virtually unchanged at 13,765 yuan per mton ($1,720 per mton, excluding VAT) but regained some ground in after-hours trading. Prices initially fell toward yesterday’s three-month low amid disappointing producer inflation data but later bounced back toward 13,825 yuan per mton ($1,728 per mton, excluding VAT), supported by expectations of credit stimulus (as new loans rose to a seven-year high for any September period).

More details in full report.