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LME prices fall back to key threshold level amid demand contraction and ABI restart; MW premium financials plummet to 17.5 cent/lb

Executive Summary

1. LME prices fall back to the key $1,770 per mton threshold on mounting concerns about world demand.

LME 3M aluminum prices closed the session down 0.7% or $12 per mton at $1,782 per mton. Aluminum prices tested intraday levels as low as $1,771.50 per mton (a one-week low) before some technical buying emerged late in the session. Oil prices plunged today by as much as 5.0% during the day, giving back most of the ground gained in the last two weeks. This is bearish LME prices as oil prices are a leading indicator for commodity prices. Predominant trading range of $1,750–$1,800 per mton still in place.

More details in full report.

2. CANADA ALUMINUM PRODUCTION ALERT. ABI smelter to restart as union accepts offer; will exacerbate regional billet oversupply and world surplus (bearish).

ABI’s union (USW) indicated that the majority of workers voted today to accept the management’s latest (and final) contract offer. Alcoa (who owns 75% of the smelter) had indicated on Wednesday that restart works would begin on July 26 if the contract offer was accepted. The smelter currently operates at a run-rate of about 17% or 69 kmtpy, out of a 413 kmtpy nameplate capacity. Indeed, the restart will further boost North America's production of primary aluminum. This is bearish for LME aluminum prices, as it reinforces our expectations of a period of growing market surpluses in the Western World, and bearish for North American billet upcharges as the region is already oversupplied.

More details in full report.

3. CME MW duty-paid financials for Q4 2019 down considerably amid contraction in world demand (bearish logistics costs) and ABI restart.

Preliminary data indicates that CME MW duty-paid premium financials for September– December 2019 weakened to a one-month low of 17.55 cent/lb, down 0.36 cent/lb from yesterday amid yesterday’s data showing world manufacturing contraction has intensified, and today’s confirmation of ABI’s restart adding considerable P1020 capacity in an already oversupplied region.

More details in full report.

4. LME Cash–3M contango widens further despite rising concentration of warrant holdings.

The LME Cash–3M contango widened to $25.75 per mton from $23.50 per mton yesterday amid further easing in the Cash–July contango to $5.50 from $4.50 per mton, while the July–August contango widened to $10.50 from $10.25 per mton, and the September–3M contango eased to $2.25 from $1.25 per mton. As a result, we estimate that the Cash–3M contango is again supportive for spot premiums, as it is wide enough for most players to profitably finance short-term cash-and-carry deals. However, there was more than one dominant holder of LME warrants (for a second time in seven years).

More details in full report.

5. China’s aluminum prices at fresh three-month lows as technical momentum deteriorates.

SHFE two-month aluminum prices closed the overnight session down 0.7% at 13,680 yuan per mton ($1,761 per mton, excluding VAT), posting the largest daily drop in nearly two months amid deteriorating technical momentum, concerns about domestic demand growth, and fading cost support—on lower prices for key raw materials. SHFE prices in a short-term technical downward trend targeting 13,500 yuan per mton ($1,740 per mton, excluding VAT).

More details in full report.