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LME inventory buildups continue; US PFA spot premiums down to decade-lows, European billet market seen in bottoming-out process

Executive Summary

1. LME prices continue to trade mostly sideways, supported by improving demand sentiment but pressured down by inventory buildups and trade uncertainty.

LME 3M aluminum prices closed the session up 0.3% or $5 per mton at $1,760 per mton. Prices declined to levels as low as $1,751 per mton during the first half of the session after the release of LME inventory data showing an intensification of buildups in Asia pushing exchange stocks to a nineteen-month high. Prices managed to bounce back amid still supportive short-term technical momentum and market talk of a brighter construction sector outlook in China, but gains remained limited amid lingering uncertainty regarding US Section 301 tariffs, remarks from the Fed’s chairman due this afternoon, and tomorrow’s UK election. Technical price indicators continue to suggest range-trading within $1,740–$1,940 per mton.

More details in full report.

2. LME aluminum inventories climb to a nineteen-month high as buildups accelerate in Asia.

LME inventories in Asia experienced buildups for a tenth-consecutive session, after warehouses in Malaysia received fresh inflows totaling 30,550 mton today, of which 18,475 mton were delivered in Johor and 12,075 mton in Port Klang. As a result, total LME inventories increased to a nineteen-month high of 1,330,825 mton, while live inventories (i.e., excluding canceled warrants) climbed to a two-year high of 1,195,050 mton.

More details in full report.

3. LME Cash–3M contango widens to a seven-week high as nearby tightness continues to moderate (premium supportive).

The LME Cash–3M contango loosened today to a seven-week high of $8.75 per mton from yesterday’s $3.50 per mton, mainly as the Cash–December contango widened to $2.25 per mton from yesterday’s $0.25 per mton, while the December–January backwardation eased to $9.00 from $13.00 per mton. Nevertheless, the Cash–3M contango remains short-term bearish for spot premiums around the world as it is unsupportive of cash-and- carry deals.

More details in full report.

4. CME MW duty-paid financials for H2 2020 drop to a twenty-month low of 15.10 cent/lb.

Preliminary data indicates that CME MW duty-paid premium financials for H2 2020 were transacted today at an average of 15.10 cent/lb, weakening 0.10 cent/lb from yesterday and 0.88 cent/lb from a week ago; preliminary volume for these contracts was equivalent to 16,875 mton. MW financials have declined during the past week after hedging activity by the beginning of December supported them to as high as 16.20 cent/lb. Nevertheless, journalistic spot premiums remain well below these levels amid the ongoing backwardation and oversupply of aluminum units in North America.

More details in full report.

5. HARBOR FIRST-USMCA ALERT. Signed USMCA agreement "improves the region's competitiveness" and "shields the region from any potential monopolistic abuse," Mexican Aluminum Association says to HARBOR in a statement.

Fernando Garcia, President of the Mexican Aluminum Association (IMEDAL) sent a statement to HARBOR last night saying: 1) Mexico imports no primary aluminum from China and won't need to if North America and other market-oriented origins remain able and competitive; 2) It is well known that there is an actual deficit in primary aluminum production in North America; 3) Indeed one of the main targets of this signed agreement is to improve the region’s competitiveness in order to offer the best products and prices to our final customers; 4) The current signed agreement improves this competitiveness and shields the region from any potential monopolistic abuse. Yesterday, the US, Mexico, and Canada signed a trade deal in Mexico City that will replace NAFTA.

More details in full report.

6. US PFA ALERT. High end of US PFA spot ingot premiums declines further due to reigning oversupply. Price differential between PFA tee and ingot continues to dissipate.

HARBOR's US PFA small ingot (A356.2) spot upcharge fell today to 6.5-8.5 cent/lb from 6.5-9.0 cent/lb. This is a new decade-low premium range. Similarly, HARBOR's Mexico PFA small ingot (A356.2) spot upcharge fell today to 6.0-8.0 cent/lb from 6.0-8.5 cent/lb. The US PFA spot market remains fiercely competitive, some domestic suppliers exempted from section 232 have shown willingness to decrease spot and contract premium upcharges closer to the low side of our current range in order to remain competitive, while some North American PFA consumers seem to have higher-than-expected inventories.

More details in full report.

7. EUROPEAN BILLET UPDATE. Spot premiums fall farther in Spain and the UK; premiums expected to bottom-out soon; some secondary billet producers almost at a standstill.

European spot market has been relatively quiet lately with only a small number of recent transactions being confirmed as extruders try to lower higher-than-expected billet inventories before the end of the year while regional extrusion demand remains subdued. For some European secondary billet producers, the Christmas break arrived earlier than usual as our market intel from the ground indicates several of these plants have already temporarily decreased/curtailed their billet production.

More details in full report.

8. China’s aluminum prices gather upward momentum, attempting to consolidate above important resistance zone.

SHFE December 2019 aluminum prices closed the overnight session up 0.2% at 14,100 yuan per mton ($1,773 per mton, excluding VAT) and extended gains in after-hours trading until testing a near-one-month high of 14,165 yuan per mton ($1,781 per mton, excluding VAT). Prices increased along with the Shanghai base metals complex amid easing domestic demand growth concerns (supported by recent trade/credit data) and market expectations for the delay of new US Section 301 tariffs on Chinese goods (due this weekend). SHFE prices are testing levels just above the 200-day moving average resistance zone, which stands within 13,900–14,000 yuan per mton ($1,745–$1,760 per mton, excluding VAT).

More details in full report.