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LME price rally continues and tests $1,800 per mton; Chinese aluminum exports losing momentum

Executive Summary

1. LME prices close at a new five-week high, testing interim resistance at $1,800 per mton, as expected.

LME 3M aluminum prices closed the session at $1,799 per mton, up 0.5% or $8.50 per mton from Friday. Prices increased for a fifth-consecutive session (up 2.9% since last Monday) as they were supported by: a) higher oil prices, b) data showing that Chinese aluminum exports continued to moderate (supportive for Western World primary demand), and c) intraday volatility in China’s aluminum prices. Aluminum prices tested intraday levels just above $1,800 per mton for the first time in three weeks. LME prices are currently targeting the $1,800–$1,850 per mton trading range.

More details in full report.

2. CHINESE ALUMINUM EXPORTS UPDATE. Year-to-date export volumes remain at a record high, but growth is losing steam amid higher SHFE prices (narrowed the export arbitrage) and softening overseas demand.

Preliminary data indicated that Chinese exports of unwrought and semi-fabricated aluminum products declined in August by 10.4% y/y. Still, year-to-date export volumes remained at a record-high, rising by 5.5% y/y to 5.9 million mton annualized. This is the largest volume for any January–August period on record (surpassing by about 0.3 million mton the annualized volume seen in the same period last year), although the expansion pace has moderated relative to 10.4% y/y in H1.

More details in full report.

3. LME Cash–3M contango narrows to the tightest in six weeks but remains short-term supportive for spot premiums.

The LME Cash–3M contango tightened to a six-week low of $25.25 per mton, from Friday’s $26.50 per mton, as the Cash–September contango narrowed to $4.00 from $4.75 per mton and the November–3M contango tightened to $2.00 from $2.50 per mton. Nevertheless, we estimate that at its current level, the Cash–3M contango remains supportive for spot premiums around the world (wide enough for most players to profitably finance short-term cash-and-carry deals).

More details in full report.

4. China’s aluminum prices test an eleven-month intraday high but fail to sustain gains.

SHFE two-month aluminum prices closed the overnight session at 14,415 yuan per mton ($1,791 per mton, excluding VAT), up by only 0.2% from Friday’s session after failing to sustain an eleven-month intraday high of 14,680 yuan per mton ($1,824 per mton, excluding VAT). Prices initially rallied due to market talk of potential curbs on bauxite exports from Indonesia (which have represented about 15% of China’s total bauxite imports so far in 2019) but reversed gains amid selling activity, downbeat trade data, and demand growth concerns.

More details in full report.