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LME prices remain trading above key $1,770 per mton threshold; European spot billet premiums decline

Executive Summary

1. LME prices managed to remain above the key $1,770 per mton threshold amid easing market fear levels.

LME 3M aluminum prices closed the session up 0.4% or $8 per mton at $1,790 per mton. Aluminum prices initially weakened to an intraday low of $1,774 per mton, following yesterday’s confirmation that the ABI primary aluminum smelter in Canada will restart around 340 kmtpy. Nevertheless, prices bounced back during the second half of the session supported by technical buying, oil prices recovering some ground, and the Fear/VIX Index falling to a new two-month low. Over the last decades, periods of easing monetary conditions (declining interest rates) have been consistently bearish for aluminum prices over the medium term. Predominant trading range of $1,750–$1,800 per mton still in place.

More details in full report.

2. LME Cash–3M contango narrows slightly amid a reduced availability of live warrants.

The LME Cash–3M contango narrowed to $25.25 per mton from $25.75 per mton amid a slight tightening in the July–September contango: the July–August contango shrunk to $10.25 from $10.50 per mton, and the August–September contango tightened to $7.00 from $7.50 per mton. However, we estimate that the Cash–3M contango is again supportive for spot premiums, as it is wide enough for most players to profitably finance short-term cash-and-carry deals. Tight availability of live warrants continues amid two dominant players holding more than 30% each.

More details in full report.

3. MW Duty-Unpaid P1020 premium up to 8.74–9.31 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at 8.74–9.31 cent/lb, increasing from yesterday’s 8.66–9.22 cent/lb amid today’s tightening nearby contangos reducing the financial cost of metal in transit and rising premiums in other regions against which the United States competes for metal units.

More details in full report.

4. US EC WIRE ROD UPDATE. US EC rod market tightens further; Reybec mill rod restart more likely.

The North American EC rod market tightness continues to widen as domestic regional supply remains subdued after Sural’s production halt earlier this year while some suppliers on both the domestic and offshore side seem to be sold out. Furthermore, we hear from the trade that some domestic suppliers seem willing to decrease their exposure to other regional wire rod niche markets in order to increase their presence on the tightening regional EC rod market. ABI smelter restart is a favorable development that could augur a potential restart of the Becancour (Reybec) rod mill.

More details in full report.

5. EUROPEAN BILLET UPDATE. European spot billet premiums decline to as low as $320 per mton; European extruders to work down inventories in July.

European billet spot demand for July is expected to remain poor at best as various extruders in both Southern and Northern Europe seem dealing with higher-than-expected billet inventories and thus are not planning to actively participate in the spot market in the coming weeks. Furthermore, several extruders in Southern Europe seem trying to lower their billet inventories before the August summer holidays. Market oversupply is palpable with many unsolicited supplier's calls taking place even after Q3 negotiations have ended.

More details in full report.

6. China’s aluminum prices remain near three-month lows amid economic growth concerns.

SHFE two-month aluminum prices closed the overnight session marginally lower at 13,650 yuan per mton ($1,755 per mton, excluding VAT) but regained some ground in after-hours trading until reaching 13,745 yuan per mton ($1,768 per mton, excluding VAT). Prices initially faced downward pressure from lingering demand growth concerns (weaker-than- expected data released overnight on China’s services sector activity) but rebounded in after- hours amid expectations of economic stimulus measures ahead. SHFE prices in a short-term technical downward trend targeting 13,500 yuan per mton ($1,740 per mton, excluding VAT).

More details in full report.