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Erratic LME movement around $1,740 per mton threshold; Backwardation intensifies; European billet premiums fall further

Executive Summary

1. LME prices still hovering around $1,740 per mton amid erratic movements; door still technically open for $1,680 per mton.

LME 3M aluminum prices closed the session at $1,734 per mton, down 0.4% or $7 per mton from yesterday. Prices lacked enough upward momentum to sustain levels above the $1,740 per mton interim resistance threshold but found support at an intraday low of $1,733 per mton amid some technical buying, oil prices climbing to a three-week high, and supportive comments from Chinese officials regarding trade talks with the US. Technically, the door is still open for a new leg down initially targeting $1,680 per mton. However, if Tuesday’s apparent breach of support at $1,740 per mton was actually a false signal, we would expect prices to range-trade within $1,740 and $1,820 per mton in the coming weeks.

More details in full report.

2. LME Cash–3M backwardation steepens to a new ten-month high amid potential December short-squeeze (bearish spot premiums).

The Cash–3M backwardation intensified further to a new ten-month high of $13.50 per mton from yesterday’s $10.00 per mton, as the Cash–December backwardation steepened to $6.00 per mton from yesterday’s backwardation of $3.00 per mton; the December– January backwardation intensified to $15.00 from $14.50 per mton. Spread tightness seems unlikely to dissipate soon amid highly concentrated December and January shorts.

More details in full report.

3. EUROPEAN BILLET UPDATE. Regional billet demand contraction, high billet inventories, and bearish market expectations cause extruders to reduce Q1 volumes and push billet premiums toward $250 per mton.

European extrusion demand contraction intensifies with extruders reporting: a) increasing competition for market share, b) higher-than-expected billet inventories, c) rollovers of some Q4 billet shipments to next year, and d) declining order intake from their export and domestic demand sides. As a result, European extruders have become increasingly conservative as they order smaller contractual Q1 volumes amid market uncertainty and the levels for next year's orders being lower than originally expected. Moreover, the progressive full regional billet premium erosion has caused some Southern European extruders to expect premium levels as low as $250 in the weeks before the end of the year, while reigning billet oversupply situation lingers.

More details in full report.

4. MW GREEN ALUMINUM PREMIUM UPDATE. HARBOR World’s FIRST US MW P1020 GREEN ALUMINUM SPOT PREMIUM Update.

Standard Specification: daily duty-paid premium paid over the LME cash price for spot physical 99.7% high-grade aluminum with 4.5 kg or less of CO2 emitted per kilogram of aluminum produced, according to Level 2 disclosure per IAI’s “Aluminium Carbon Footprint Technical Support Document—v1-final—15th Feb 2018.” Level 2 includes smelter emissions scope 1 and 2 (including anode production and casting operations), alumina refining and bauxite mining emissions scope 1 and 2.

More details in full report.

5. China’s aluminum prices unable to break above the 200-day moving average zone.

SHFE December 2019 aluminum prices closed the overnight session up 0.8% at a two- week high of 13,955 yuan per mton ($1,756 per mton, excluding VAT). Prices sustained early gains triggered by apparent short-covering activity amid improving demand sentiment and continued visible inventory withdrawals but remained unable to consolidate above technical resistance. 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.