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Backwardation steepens to double digits (bearish spot premiums); European spot and Q1 2020 billet premiums fall further

Executive Summary

1. LME prices face technical resistance at our expected target zone ($1,820–$1,850 per mton).

LME 3M aluminum prices closed the session at $1,813 per mton, up 0.2% from yesterday. In intraday terms, prices tested a new eight-week high of $1,819 per mton, marginally above technical resistance at the 200-day moving average threshold, but faced technical selling pressure toward the end of the session. As a result, aluminum underperformed a 2% rally in copper prices, which were buoyed by comments from US and Chinese officials about tariff de-escalation (if an interim trade agreement is completed). Aluminum prices are facing resistance at our identified target zone of $1,820–$1,850 per mton.

More details in full report.

2. LME Cash–3M backwardation intensifies to double digits (bearish for premiums).

The Cash–3M backwardation sharply intensified today, to $11.25 per mton from Wednesday’s $6.25 per mton, as the Cash–December contango tightened to $4.50 from $8.25 per mton and the December–January backwardation intensified to a new record high of $17.50 per mton from yesterday’s $17.00 per mton. Spread tightness seems unlikely to dissipate soon amid concentration of shorts due in December–January.

More details in full report.

3. HARBOR’s Implicit Green Aluminum Upcharge assessed today at zero, unchanged from yesterday’s assessment.

HARBOR’s US MW P1020 Green Aluminum Spot Premium was assessed today at 16.05– 16.20 cent/lb, unchanged from the previous session. Meanwhile, HARBOR's US MW P1020 Ingot Duty-Paid Consumer-Supplier Spot Transaction Premium stands also unchanged at 16.05–16.20 cent/lb (which equates to discounts of 0.55–0.70 cent/lb below current journalistic MW premium references). As a result, HARBOR’s Implicit Green Aluminum Upcharge was assessed today at zero, unchanged from yesterday’s assessment.

More details in full report. 

4. EUROPEAN BILLET UPDATE. Billet spot and Q1 premiums down to as low as $280 per mton; the low end of spot premiums falls in Northern Europe, Poland, UK, and Italy.

Some Asian-origin billet units that have already made it to Europe are been offered closer to the low end and middle of our current spot ranges by several traders in Italy, Spain, and Portugal. Recent aggressive selling has resulted from the ongoing LME backwardation. Meanwhile, European Q1 2020 contractual negotiations are ongoing, with latest confirmed closed contract falling within the anticipated Q1 premium range and confirming a decline of $20–$35 per mton compared to Q4 contracted premium levels.

More details in full report.

5. China’s aluminum prices hover around important technical threshold.

SHFE two-month aluminum prices closed the overnight session marginally down at 13,940 yuan per mton ($1,768 per mton, excluding VAT) but rebounded in after-hours trading. Prices tested levels as high as 14,120 yuan per mton ($1,791 per mton, excluding VAT) amid reports of a tentative agreement to proportionately roll back tariffs between the US and China but reversed gains on technical selling to end the session below their 200-day exponential moving average threshold. Technical resistance still prevails at the 200-day exponential moving average threshold.

More details in full report.