Subscription inquiry

LME above key resistance, more gains seen ahead; Warehouse reform to increase world premium levels; Cash-3M “back” returns

Executive Summary

1. LME PRICE ALERT. LME prices rally above key $1,770 per mton threshold; if confirmed Monday, next technical target would be $1,825 per mton

LME 3M aluminum prices close at a six-week high of $1,786 per mton, experiencing its biggest daily gain in three months (up by 1.8% or $31 per mton from Thursday). Prices were underpinned by improving demand sentiment amid stronger than expected US employment data, followed by further signs of stabilization in US manufacturing activity. Today’s US economic data (manufacturing and employment) reinforces expectation in the market that the Fed’s easing cycle could have ended (bullish for LME aluminum prices as they tend to go hand-in-hand with demand cycles). If prices close higher Monday, they would confirm a break above the $1,745-$1,770 per mton resistance zone.

More details in full report.

2. PREMIUMS & WAREHOUSING ALERT. LME to proceed with warehouse reform, expecting higher premiums across the board.

The London Metal Exchange announced today that it will implement the warehouse reforms proposed in its July 2019 consultation. The new rules will enter into effect on February 1, 2020, except for the new Complaints Procedures (to be implemented from November 15, 2019). Among the most significant changes we see are: a) to extend the QBRC (Queue-Based Rent-Capping) period from 50 days to 80 days and eliminate any rent reductions within this period; b) eligible stock reporting for off-warrant metal; and c) to extend the current freeze on maximum rents and FOT charges until 2027-2028. As a result, QBRC period extension is expected to push up minimum premium levels across the world.

More details in full report.

3. LME Cash–3M spread turns to backwardation for the first time in nine months (bearish for premiums).

The Cash–3M spread settled today in a backwardation of $4.75 per mton, after tightening from yesterday’s marginal contango of $1.00 per mton. Nearby tightness intensified further today, with the November–December contango almost flattening to $1.50 from yesterday’s $4.50 per mton, while the December–January backwardation continued intensifying to $15.50 per mton from $14.00 per mton. Spread tightness seems unlikely to dissipate as conditions remain supportive for the steep backwardation.

More details in full report.

4. ALUMINUM PRODUCTION UPDATE. Trimet to restart production, a 45 kmtpy primary aluminum revamp could soon take place in Germany.

Trimet has decided to return its smelters to full capacity by 2020 amid a normalization in alumina supply and expectations of solid demand from the automotive sector, according to reported statements from an executive board member. The restart process could be completed in Q2 2020. Smelting operations would increase by an estimated 45 kmtpy, mainly in Germany. Potential gains seem marginal compared to production restarts in Canada and Brazil, yet these would help to recover Western Europe’s primary aluminum production.

More details in full report.

5. China’s aluminum prices rally toward important technical threshold, upside could open if breakout occurs in the coming sessions.

SHFE two-month aluminum prices closed the overnight session up 0.1%, at 13,840 yuan per mton ($1,741 per mton, excluding VAT) and extended gains in after-hours trading until testing a three-week intraday high of 13,960 yuan per mton ($1,756 per mton, excluding VAT). Prices were buoyed by: a) easing demand growth concerns; the alternative Caixin Manufacturing PMI indicated that activity expanded at stronger-than- expected pace in October (in contrast with the official PMI index), b) improving short-term technical indicators, and c) higher LME aluminum prices.

More details in full report.