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Key $1,745 support holds for now; Chinese aluminum semis exports weaken in July


Executive Summary

1. LME prices bounce back along with higher oil prices and easing market fear levels; key support holds for now.

Prices closed at a one-week high of $1,778 per mton, climbing by 1.9% or $33 per mton from yesterday’s 31-month low closing price of $1,745 per mton, bolstered by a combination of fund short-covering and technical buying near yesterday’s multi-year low mark. Aluminum prices increased in a context of: a) oil prices erasing yesterday’s 5% plunge, b) the Fear/VIX Index easing to the lowest so far this week, and c) better-than-expected trade data from China easing economic slowdown concerns. A weekly close below $1,770 per mton tomorrow would be a bearish technical signal.

More details in full report.

2. CHINESE ALUMINUM EXPORTS UPDATE. China’s exports of aluminum products softened in July, but are expected to resume growth soon given a wider export arbitrage window. Year-to-date volumes remain at a record high.

Preliminary data for exports of unwrought and semi-fabricated aluminum products indicated a 6.3% y/y decline in July, as volumes totaled 487 kmton. Unfavorable seasonality in July was likely exacerbated by a narrower export arbitrage in previous months. However, weakness in exports may not be sustained for too long, as the export arbitrage window has widened in recent weeks. Indeed, in year-to-date terms, exports kept reaching new record-high volumes.

More details in full report.

3. LME aluminum canceled warrants rise again in Malaysia, increase risks of tighter forward spreads ahead.

Asian LME live aluminum warrants declined today by 26,725 mton amid a spike in warrant cancelations in Port Klang, Malaysia (24,825 mton) and Singapore (1,900 mton). So far this week, cancelations in LME warehouses have totaled 65,825 mton, which have driven LME aluminum live inventories (i.e., inventories excluding canceled warrants) to a two- week low of 708,850 mton. Cancelations increase risks of tighter spreads ahead (unsupportive of wide nearby contangos).

More details in full report.

4. LME Cash–3M contango narrows below $30 per mton but remain supportive for P1020 spot premiums across the world.

The Cash–3M contango narrowed today to $29.25 per mton from yesterday’s seven-week peak of $30.00 per mton, as a narrower Cash–Aug contango more than offset a wide August–September contango. The Cash–3M contango remains supportive for spot premiums around the world as it is wide enough for most players to profitably finance short-term cash- and-carry deals. Longer-term contangos narrowed but also remain attractive for the most competitive players.

More details in full report.

5. China’s aluminum prices rebound but remain capped by technical resistance.

SHFE two-month aluminum prices bounced back from an early intraday low, just below 13,800 yuan per mton ($1,733 per mton, excluding VAT), to their 100-day exponential moving average threshold around 13,900 yuan per mton ($1,745 per mton, excluding VAT). Intraday gains were supported by technical buying and easing risk aversion, amid upbeat trade data from China and diminished fears of currency devaluation. Nonetheless, aluminum prices in China continue to lack enough strength to climb above the key technical resistance threshold.

More details in full report.