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Fed may be one cut away from being done (LME price weakness not over); December–January “back” intensifies to double digits (unsupportive of premiums)

Executive Summary

1. LME prices fall and continue to trade just above key support at $1,770–$1,745 per mton; Fed interest rate cut and hint that one more cut may be left signals LME price weakness is not over.

LME 3M aluminum prices closed the session down 0.4% or $6.50 per mton at $1,785.50 per mton. Prices initially fell to as low as $1,780.50 per mton before finding some support toward the end of the session amid better-than-expected US housing data and easing geopolitical risks in Middle East. After the close of the LME session, the Fed cut interest rates as expected and left the door open for at least one more cut, which signals prolonged LME price weakness. Indeed, several members of the Fed’s open market committee project room for another rate cut, while Fed funds futures indicate another rate cut before the end of the year.

More details in full report.

2. Strike at GM to hit demand and prices of A356.2, A380, A319 alloy units.

Workers at General Motors plants in the US went on strike on Sunday evening. As many as 53 facilities face shutdowns. We understand negotiations are currently ongoing. We estimate that around 10.6 kmton per month of aluminum foundry demand (A356.2, A380 and A319) could be lost if the strike keeps going. The GM strike is bearish for the North American aluminum foundry market which already suffers from a growing oversupply of secondary and primary aluminum units. The GM strike is even more bearish.

More details in full report.

3. LME December 2019–January 2020 backwardation intensifies to double digits (unsupportive for premiums).

The steep backwardation between December 2019 and January 2020 sharply intensified today, steepening to $14.50 from yesterday’s $8.50 per mton amid highly concentrated short positions for December. Meanwhile, the Cash–3M contango narrowed slightly to $31.25 from $31.50 per mton yesterday, supported by a wider November–December contango.

More details in full report.

4. MW Duty-Unpaid P1020 premium up to 8.65–9.41 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) assessed today at 8.65–9.41 cent/lb, increasing from yesterday’s 8.64–9.35 cent/lb mainly as a result of today’s tightening nearby contangos increasing the financial cost of metal in transit.

More details in full report.

5. China’s aluminum prices test a one-month low, near their current support threshold of 14,000 yuan per mton ($1,750 per mton, excluding VAT).

SHFE November 2019 aluminum prices closed the overnight session unchanged at 14,250 yuan per mton ($1,780 per mton, excluding VAT) but in after-hours trading fell by as much as 0.9% to test a one-month intraday low of 14,125 yuan per mton ($1,764 per mton, excluding VAT) amid downbeat short-term technical momentum and lingering concerns about domestic demand growth. Prices are now nearing technical support at the key 200-day moving average threshold, which stands practically at 14,000 yuan per mton ($1,750 per mton, excluding VAT).

More details in full report.