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LME prices close the week above key support despite inventory buildups; Cash–3M backwardation returns (bearish premiums)

LME prices close the week above key support despite inventory buildups; Cash–3M backwardation returns (bearish premiums)

Executive Summary

1. LME prices were up on Friday as key support at $1,740 per mton prevailed. Prices still declined 3% in the week amid increasing inventory buildups and bearish sentiment.

LME 3M aluminum prices closed the session up 0.8% or $14 per mton at $1,755 per mton. Prices initially declined to a two-week intraday low of $1,733 per mton dragged by another significant buildup of 47 kmton at LME warehouses in Asia. However, prices bounced back during the second half of the session amid technical buying and broad- based gains across the commodity complex as a senior White House official said that a trade deal with China is “getting close.” However, LME aluminum inventories climbed to a five-month high today, while our proprietary Aluminum Market Sentiment Index remains at levels historically considered as 'extremely bearish'.

More details in full report.

2. CME MW duty-paid financials for 2020 transacted at around 15.35 cent/lb.

Preliminary data indicates that CME MW duty-paid premium financials for H1 2020 were transacted today at 15.35 cent/lb, marginally up from Wednesday’s nineteen-month low of 15.28 cent/lb but weakening 1.00 cent/lb from a week ago. Meanwhile, CME MW duty- paid premium financials for H2 2020 were transacted today at an average of 15.37 cent/lb. MW financials have plunged this week in response to a record decline of 1.50 cent/lb in journalistic spot premiums in one week amid the ongoing backwardation and oversupply of aluminum units in North America.

More details in full report.

3. Large LME aluminum inventory buildups continue to take place in Asia (as expected); global LME inventories now stand at a six-month high while live warrants reach a ten-month high.

LME warehouses in Asia experienced another sizable warranting after another 46,275 mton were delivered across Port Klang, Malaysia. During the last four sessions, the cumulative inflow has totaled 138,725 mton. As a result, total LME inventories increased to a six-month high of 1,065,175 mton, while live inventories (i.e., excluding canceled warrants) have climbed to a ten-month high of 916,850 mton. More buildups could still be ahead as the December–January backwardation remains considerable.

More details in full report.

4. LME Cash–3M backwardation resumes as tightness after November continues to intensify (bearish premiums).

The Cash–3M spread settled in a backwardation of $4.00 per mton, from Thursday’s contango of $3.50 per mton. Nearby tightness intensified today, as the November– December contango narrowed to $3.50 from yesterday’s three-week high of $6.75 per mton, the December–January backwardation intensified to $13.50 from a three-week low of $11.50 per mton, and the January–3M contango narrowed to $5.50 from $7.25 per mton. The Cash–3M backwardation remains short-term bearish for spot premiums around the world.

More details in full report.

5. 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 also stands unchanged at 16.05–16.20 cent/lb. As a result, HARBOR’s Implicit Green Aluminum Upcharge was assessed today at zero, unchanged from yesterday’s assessment.

More details in full report.

6. China’s aluminum prices practically stall at two-week lows.

SHFE December 2019 aluminum prices closed the overnight session at 13,820 yuan per mton ($1,745 per mton, excluding VAT). Prices hardly changed from Tuesday, as demand growth concerns from recent downbeat domestic economic data were counterbalanced by the announcement of economic stimulus measures. Prices continue to find some technical support near the 200-day moving average zone, which now stands within 13,900–14,000 yuan per mton zone ($1,755–$1,770 per mton, excluding VAT).

More details in full report.