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LME prices plunge amid demand contraction and inventory buildups

Executive Summary

1. LME PRICE UPDATE. LME Cash prices fall to HARBOR's target of $1,680 per mton; a breach lower would open door to $1,550 per mton.

LME 3M aluminum prices plunged today to a thirty-two-month low of $1,706 per mton, closing the session down 2.0% or $34 per mton. Moreover, LME Cash aluminum prices plunged to the lowest mark since October 2016 of $1,686.25 per mton, down 2.1% from yesterday. Speculative selling intensified during today’s session as: a) prices failed once again to climb above an intraday high of $1,744 per mton, b) visible inventory buildups accelerated in Asian LME warehouses and, c) US manufacturing activity contracted in September by the most in ten years. LME prices are practically trading at our initial target of $1,680 per mton.

More details in full report.

2. LME aluminum inventories spiked in Asia by the most in two months (bearish for LME prices); buildups now taking place in South Korea.

LME warehouses in Asia experienced fresh inflows of aluminum today, totaling 17,000 mton at Gwangyang (South Korea) and 12,550 mton into Singapore. Asian LME warehouses have received consecutive daily inflows for more than a week now, since September 24, totaling 95,675 mton during this period. This represents the largest streak of inflows/warrantings since July 2019 when a total of 183,000 mton were delivered to LME warehouses in Asia. Inflows continue to take place amid December–January backwardation.

More details in full report.

3. LME Cash–3M contango widens amid a slight easing in December’s backwardation.

The LME Cash–3M contango widened today to a $18.75 per mton from yesterday’s ten- week low of $18.00 per mton mainly as a result of an easing December–3M backwardation (to $4.75 from $6.00 per mton) that more than offset today’s narrowing Cash–October contango (to $3.50 from $4.25 per mton). As a result, we estimate that at today’s level the Cash–3M contango is wide enough only for the most competitive players (i.e., those with access to the lowest financing and storage costs) to profitably finance short-term cash-and-carry deals.

More details in full report.

4. CME MW duty-paid financials for H1 2020 up to a two-month high (backwardation persists).

Preliminary data indicates that CME MW duty-paid premium financials for H1 2019 up to a three-month high of 17.56 cent/lb, increasing from an average of 17.30 cent/lb a week ago. Meanwhile, preliminary data indicates that CME MW duty-paid premium financials for Q4 2019 quoted today at a two-month high of 17.78 cent/lb, up 0.21 cent/lb from a week ago. As a result, US MW duty-paid financials’ backwardation persists.

More details in full report.

5. Metal Exchange Corporation names Rick Merluzzi as CEO, Mike Lefton to become executive chairman.

The company announced today that Rick Merluzzi has been promoted to CEO of Metal Exchange Corporation (MEC). Mr. Merluzzi was president and COO for the last five years and previously served as president of Pennex Aluminum. Mike Lefton, current chairman and CEO, will become executive chairman.

More details in full report.

6. Chinese markets are closed for the remainder of the week due to National Day holiday; trading will resume on October 8.