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LME prices find support at $1,710–$1,720 per mton; LME spreads tighten to a new nine-month low (bearish for spot premiums)

Executive Summary

1. LME prices continue to range-trade just above our expected downward trend target of $1,680 per mton.

LME 3M aluminum prices closed the session at $1,727 per mton, down 0.1% from yesterday. Prices continued to trade mostly sideways, with downside support provided by a softening US dollar but trimming gains during the second half of the session due to downbeat US economic data. US industrial production contracted in annual terms for the first time in almost three years (down 0.1% y/y in September), dragged down by plunging automotive sector output. Prices remain in a technical downward trend targeting $1,680 per mton.

More details in full report.

2. LME Cash–3M contango tightens to $2.75 per mton as December–January “back” continues to intensify (bearish premiums).

The Cash–3M contango tightened to a new nine-month low of $2.75 per mton from yesterday’s $5.50 per mton, as nearby tightness intensified through January. The Cash– December contango narrowed to $15.25 from yesterday’s $16.50 per mton, and the December–January backwardation steepened to $11.50 from yesterday’s $10.00 per mton. Specifically, the backwardation between December 11, 2019, and January 16, 2020, intensified to $18.00 per mton from an already steep $15.50 per mton “back” on Wednesday.

More details in full report.

3. MW Duty-Unpaid P1020 premium up to 9.43–10.16 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at 9.43–10.16 cent/lb, increasing from yesterday’s 9.33–10.09 cent/lb amid today’s tightening in nearby LME contangos, which increases the financial cost of metal in transit.

More details in full report.

4. China’s aluminum prices increase as support remains in place, although medium-term technical indicators remain fragile.

SHFE December 2019 aluminum prices closed the overnight session up 0.3% at 13,835 yuan per mton ($1,730 per mton, excluding VAT), extending gains in after-hours trading until testing 13,890 yuan per mton ($1,737 per mton, excluding VAT). Prices were supported by market expectations for an improvement in domestic industrial production growth (September data due tonight), and by reports of firm net withdrawals in domestic primary aluminum visible inventories. However, some of our medium term technical indicators could turn bearish tomorrow, which could increase the odds of a new leg down ultimately targeting 13,250 yuan per mton ($1,655 per mton, excluding VAT).

More details in full report.