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LME prices targeting $1,820-$1,850 per mton zone as world manufacturing contraction diminishes; LME backwardation intensifies

Executive Summary

1. LME PRICE ALERT. LME prices rally to a seven-week high on improving macro sentiment; headed to test $1,820-$1,850 per mton.

LME 3M aluminum prices closed the session at a near two-month high of $1,816 per mton, up 1.6% or $29 per mton from Friday. Prices built on Friday's 1.8% rally, confirming a technical breakout above the $1,770 per mton threshold, bolstered by: a) growing optimism regarding phase-one trade deal between the US and China, b) European manufacturing activity data being less downbeat than expected (the contraction in October being less steep than indicated by preliminary data), and c) short-covering and technical buying of LME aluminum contracts as short-term technical indicators are no longer bearish. LME prices are now targeting $1,820-$1,850 per mton.

More details in full report.

2. LME December–January backwardation intensifies to the widest in ten months (bearish for premiums).

The Cash–3M backwardation intensified to $6.25 per mton from Friday’s $4.75 per mton “back.” The Cash–3M “back” settled today at the steepest in ten months after the December–January backwardation intensified further to $16.25 per mton from Friday’s $15.50 per. In more detail, the backwardation between December 11 and January 17 intensified to $22.75 per mton from a $22.25 per mton backwardation on Friday. As a result, the Cash–3M backwardation remains short-term bearish for spot premiums around the world.

More details in full report.

3. SECTION 232 UPDATE. Another 230 kmton of aluminum products are granted a Section 232 exemption.

According to the latest documents posted by the Department of Commerce's Bureau of Industry and Security (BIS), exemptions granted in October were for 143 kmton of sheet (mainly 5052-alloy), 67 kmton of cansheet (3104-alloy), and nearly 15 kmton of profiles (mainly 6005 alloy); other exemptions included foil (3.6 kmton), lithographic (1.6 kmton), and circles (0.5 kmton). Our preliminary assessment indicates that the largest exempted volumes in October were for: aluminum sheet for AA Metals Inc., aluminum cansheet for Ball Metal Beverage Container Corp., and aluminum extrusions for Ta Chen International, Inc.

More details in full report.

4. China’s aluminum prices testing three-week highs near important technical threshold.

SHFE two-month aluminum prices closed the overnight session up 0.5% at a three-week high of 13,910 yuan per mton ($1,751 per mton, excluding VAT), supported by increased optimism toward a potential US-China interim trade deal, rallying LME aluminum prices, and Friday’s upbeat domestic manufacturing activity data. SHFE prices have regained short-term upward momentum but remain capped at the 200-day moving average threshold.

More details in full report.