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LME prices and P1020 spot premiums firm up slightly; European billet premiums still falling

P1020 PREMIUMS ALERT.

Executive Summary

1. LME prices close the week above key technical support, the next technical target remains $1,940 per mton.

LME 3M aluminum prices closed the session at $1,806 per mton, up 0.1% or $2.50 per mton from yesterday. Prices initially continued to be pressured down by the correction in oil prices, but bounced back as the US dollar weakened while some speculative buying was fueled after the announcement of tougher US sanctions on Iranian primary aluminum producers. The next technical target for LME prices remains $1,940 per mton.

More details in full report.

2. IRAN ALUMINUM ALERT. US toughens sanctions against Iranian aluminum industry.

The US Treasury’s Office of Foreign Assets Control (OFAC) announced today new sanctions against Iran, including the specific designation as sanctioned entities of Iran Aluminum Company (IRALCO) and Al-Mahdi Aluminum Corporation, which together operate currently at an annualized run-rate of nearly 300 kmtpy and represent about 5% of Middle East operating capacity and 1% of the Western World’s. Sanctions were also imposed on foreign entities involved in the metals purchase, transport, and raw materials provision to the Iranian metals sector.

More details in full report.

3. P1020 PREMIUMS ALERT. LME load-out queues widen amid large cancelations in Malaysia; will push up P1020 premiums around the world given change in LME warehousing rules.

According to LME data released today, as of the end of last month, aluminum load-out queues in Port Klang, Malaysia have widened to 33 working days from 11 days in November. The emergence of a load-out queue in Port Klang is expected to increase spot P1020 premium equilibrium levels across the board by around 0.42 cent/lb or $9.25 per mton. Furthermore, the effect of queues on physical premiums could further increase starting next month by the new LME warehousing rules.

More details in full report.

4. LME Cash–3M contango tightens to a two-week low (remains premium-supportive).

The Cash–3M contango narrowed today to a two-week low of $25.25 per mton from Thursday’s $28.50 per mton mainly as a result of a significant tightening in the January– February contango to $9.00 from $12.50 per mton. Nevertheless, the Cash–3M contango remains supportive for spot premiums around the world since the current level is still wide enough for most players to profitably finance short-term cash-and-carry deals.

More details in full report.

5. EUROPEAN BILLET UPDATE. Spot premiums decline further in Germany, Poland, Spain, Portugal, and the UK. Some extruders are back in the spot market.

Various European extruders coming back from the holidays have now become active in the billet spot market as we have confirmed several recent spot transactions in these first few days of the year. We understand these extruders seem to have aggressively lowered their billet inventories before year-end and are now stepping back in the spot market to cover some needs. Looking ahead, we expect the billet spot premiums to bounce back somewhat as higher LME prices, stronger Rotterdam duty-unpaid premiums and a slight pick-up in demand could feed a small premium rebound in coming months.

More details in full report.

6. MEXICO SECONDARY ALERT. A380 spot prices jump to 65.5 cent/lb pressured by higher secondary scrap prices and better than expected demand.

Mexico's secondary market has begun the year on a bullish tone. HARBOR Mexico A380 spot prices have jumped to 65.5 cent/lb from 61.0 cent/lb as spot activity resumed after being muted for a long period. According to our visibility, Mexico's spot A380 market is no longer trading at a discount below journalistic references but moving again towards a premium market.

More details in full report.

7. BRAZIL P1020 UPDATE. Six-month P1020 tariff free import quota extension was officially announced today.

As anticipated, Brazil has renewed its P1020 tariff free import quota until June 2020 effectively exempting 150 kmton for the January-June 2020 period of six months. This is effectively an extension of the previous six months import quota allowance (142.5 kmton) that expired the last day of December. The official confirmation and approval have just taken place.

More details in full report.

8. HARBOR’s Implicit Green Aluminum Upcharge assessed today at zero.

Standard Specification: daily duty-paid premium paid over the LME cash price for spot physical 99.7% high-grade aluminum with 4.5 kg or less of CO2 emitted per kilogram of aluminum produced, according to Level 1 disclosure per IAI’s “Aluminium Carbon Footprint Technical Support Document—v1-final—15th Feb 2018.” Level 1 only includes smelter emissions scope 1 and 2 (including anode production and casting operations) and does not include alumina refining and bauxite mining emissions scope 1 and 2.

More details in full report.

9. China’s aluminum prices nearing last September’s peak.

SHFE front-month aluminum prices closed at a new three-month high of 14,510 yuan per mton ($1,856 per mton, excluding VAT) and extended gains in after-hours trading until testing 14,595 yuan per mton ($1,867 per mton, excluding VAT). Prices stood about 0.6% below September’s intraday peak amid a somewhat tight spot market, given three-year lows domestic visible primary aluminum inventories, and upbeat remarks from President Trump about the US-China Phase One trade agreement.

More details in full report.