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LME rally pauses amid profit taking; Mexico’s imported billet volumes fall to fifteen-month lows on domestic casthouse expansions


Executive Summary

1. LME prices trim gains on profit taking, after reaching five-month highs on Monday; still targeting $1,940 per mton.

LME 3M aluminum prices closed the session down 0.9% or $17 per mton at $1,816 per mton. Prices could not retest yesterday’s five-month intraday high of $1,835 per mton as they faced profit-taking selling along with oil prices. Moreover, during the second half of the session, aluminum declined to levels as low as $1,814.50 per mton as the US dollar bounced back after the release of strong US services sector data (activity expanded at a four-year high pace in December). The next technical target for LME prices is $1,940 per mton, with interim resistance seen at $1,870 per mton.

More details in full report.

2. LME Cash–3M contango narrows from three-month highs but remains supportive for global premiums.

The Cash–3M contango narrowed today to $30.75 per mton from Monday’s three-month high of $33.00 per mton as a result of the Cash–January contango shrinking to $3.25 from $5.50 per mton and the February–March contango narrowing to $10.00 from $10.75 per mton. The Cash–3M contango remains supportive for spot premiums around the world since the current level is still wide enough for most players to profitably finance short- term cash-and-carry deals.

More details in full report.

3. MEXICO BILLET ALERT. Captive billet production in Mexico expands farther, imported billet volumes fall to fifteen-month lows.

Mexico billet imports declined 22% y/y in November 2019 to its lowest level since June 2018. Domestic demand plummeted especially in H2 of 2019 amid a sharp B&C sector contraction, with most billet consumers long on metal, declaring minimums on their contracts, or directly rolling over metal intake. Demand for imported billet units could recover a bit early this year but nothing relevant. Meanwhile, it is worth noting that at least three Mexican extruders have expanded their internal capacity to produce billet. These increases will cannibalize at the least 60 kmton of imported billet.

More details in full report.

4. HARBOR’s Implicit Green Aluminum Upcharge assessed today at zero.

Standard Specification: daily duty-paid premium paid over the LME cash price for spot physical 99.7% high-grade aluminum with 4.5 kg or less of CO2 emitted per kilogram of aluminum produced, according to Level 1 disclosure per IAI’s “Aluminium Carbon Footprint Technical Support Document—v1-final—15th Feb 2018.” Level 1 only includes smelter emissions scope 1 and 2 (including anode production and casting operations) and does not include alumina refining and bauxite mining emissions scope 1 and 2.

More details in full report.

5. China’s aluminum prices remain capped below three-month highs.

SHFE front-month aluminum prices closed the overnight session down 0.4% at 14,350 yuan per mton ($1,828 per mton, excluding VAT). Prices posted the largest drop in nearly two weeks as technical selling seemingly emerged after another failed attempt to consolidate above three-month highs just above 14,400 yuan per mton ($1,835 per mton, excluding VAT). Technically, SHFE prices are targeting 14,680 yuan per mton ($1,870 per mton, excluding VAT).

More details in full report.