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LME prices test key $1,745 per mton resistance; Expecting more LME inventory buildups as Cash–3M contango tightens further (bearish for spot premiums)

LME prices test key $1,745 per mton resistance; Expecting more LME inventory buildups as Cash–3M contango tightens further (bearish for spot premiums)

Executive Summary

1. LME prices rise amid subdued volume. However, $1,680 per mton remains the immediate price target.

LME 3M aluminum prices closed the session up 1.6% or $27 per mton at $1,746 per mton. Prices increased amid apparent short-covering ahead of the resumption of US-China trade talks and tonight’s reopening of Chinese markets after a week-long holiday. Oil prices rising by nearly 2% were also supportive for aluminum prices, but trading volumes in the LME 3M aluminum contract remained relatively thin, prompting some erratic movements during the second half of today’s session. Technically, LME aluminum prices are still targeting $1,680 per mton.

More details in full report.

2. LME Cash–3M contango tightens to $5.25 per mton, the narrowest in eight months (bearish for spot premiums).

The LME Cash–3M contango narrowed today a new eight-month low of $5.25 per mton from Friday’s $11.00 per mton, mainly as a result of a sharp tightening in conditions after October. Specifically, there was a backwardation between December 5, 2019, and January 15, 2020, of $14.50 per mton, much steeper than $10.50 per mton on Friday. At today’s level, the Cash–3M contango is not supportive of cash-and-carry deals as the financing of metal becomes uneconomic (bearish for spot premiums). Moreover nearby conditions could tighten into next week’s third-Wednesday prompt date.

More details in full report.

3. LME aluminum inventory inflows eased today, but more buildups could still be ahead (already accumulate 106 kmton in two weeks).

Today, LME warehouses in Asia registered inflows for a tenth-consecutive session. Deliveries moderated to only 675 mton, compared to the average daily inflow of 11,706 mton experienced since September 25 (across LME-approved storage locations in Malaysia, Singapore, and South Korea). However, the cumulative inflow of 106,025 mton during the last two weeks remains the largest since July, when a total of 183,000 mton were delivered to LME warehouses in Asia. More buildups could still be ahead amid emerging nearby tightness, while the December–January backwardation remains considerable.

More details in full report.

4. Chinese markets were closed due to National Day holiday; trading will resume tonight.