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LME prices up despite massive LME buildup; MW premium gaps down to a 21-month low; European billet premiums down

Executive Summary

1. LME prices continue to gather upward momentum despite massive buildups in Asia. Current price target is $1,810-$1,820 per mton.

LME 3M aluminum prices closed the session at $1,770 per mton, up 1.0% or $18 per mton from yesterday. Aluminum prices increased to a nearly three-week high on a combination of improved technical indicators and end-of-month short covering. In fact, LME prices rallied despite considerable LME metal buildups in Asia (42 kmton of fresh inflows), oil prices plunging 4% and copper facing losses. We continue to expect prices to trade within the $1,740–$1,940 per mton range.

More details in full report.

2. LME Cash–3M backwardation steepens to a new sixteen-month high of $22 per mton, as nearby tightness intensifies considerably (bearish spot premiums).

The Cash–3M backwardation intensified today to a sixteen-month high of $22.00 per mton from Thursday’s $11.25 per mton as a result of a sharp steepening in the Cash–December backwardation to $12.00 from $6.00 per mton, while the December–January "back" intensified to $16.50 from $13.00 per mton. This continues to be short-term bearish for spot P1020 premiums across the board.

More details in full report.

3. LME Inventories Alert. LME inventories experience record surge in Asia amid backwardations and Western World surplus.

LME locations in Asia registered fresh inflows today totaling 42,050 mton (26,150 mton in Malaysia and 15,900 mton in Asia). As a result, gross deliveries in November totaled 360,125 mton, exceeding a previous record surge of 325,975 mton in February 2018. In fact, global LME aluminum inventories surged by the most in eight years in November, increasing 312,600 mton or 33% m/m. The spike in inflows continues to be triggered by a steep December–January backwardation.

More details in full report.

4. US MW PREMIUM ALERT. MW premium gaps down to a twenty-one-month low; latest 2020 deals concluded with 2–3 cent/lb discounts under MW.

MW P1020 spot premium among suppliers plummets as North American producers with Section 232 exemptions discount metal to find buyers and a double-digit backwardation taxes metal holders. HARBOR's US MW P1020 Ingot Duty-Paid Supplier-Supplier Spot Transaction Premium gapped down today to a twenty-one-month low of 13.30–14.25 cent/lb from a previous range of 14.50–15.50 cent/lb.

More details in full report.

5. EUROPEAN BILLET UPDATE. Q1 negotiations extending longer; Low end of Portugal spot premiums declines to $300 per mton.

“The longer you wait, the lower premium you can obtain” seems to be mantra that some European extruders are following, as we can confirm that various European extruders seem pushing to extend Q1 billet negotiations longer than usual, while pushing suppliers to offer them lower contractual premiums as time goes by. Even Tier 1 suppliers seem be facing further downside Q1 premium pressure, with the latest confirmed offers from some of them for Q1 being closer to $310 per mton in Southern Europe.

More details in full report.

6. China’s aluminum prices bounce back but remain capped by technical resistance.

SHFE December 2019 aluminum prices closed the overnight session up 0.2% at 13,900 yuan per mton ($1,749 per mton, excluding VAT), extending gains in after-hours trading until testing 13,980 yuan per mton ($1,759 per mton, excluding VAT). Prices were buoyed by strong net inventory withdrawals at SHFE warehouses (which posted the largest weekly decline in four months today) but continued to face technical resistance at the 200-day exponential moving average threshold.

More details in full report.