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MW 2020 financials fall to new five-month lows; US billet imports down again

Executive Summary

1. LME prices remain unable to break above $1,745–$1,770 per mton resistance zone.

LME 3M aluminum prices closed the session down 0.3% or $5 per mton at $1,755 per mton. Prices tested levels as low as $1,733 per mton amid demand growth concerns following the release of disappointing Chinese manufacturing data and US jobs data, but faced a technical rebound in the second half of the session to outperform the base metals complex and end marginally lower from Wednesday. In monthly terms, prices posted gains for the first time in three months (up by 1.9% m/m) after testing a thirty-three- month low in September. LME aluminum prices are still unable to confirm a breakout above expected resistance at $1,745–$1,770 per mton.

More details in full report.

2. CME MW duty-paid financials for 2020 fall further to a new five-month low (premium backwardation persists).

Preliminary data indicates that CME MW duty-paid premium financials for H1 2020 were transacted today at a new five-month low of 16.56 cent/lb, falling 0.45 cent/lb from a week ago. Meanwhile, preliminary data indicates that CME MW duty-paid premium financials for H2 2020 held unchanged at a three-month low average of 16.51 cent/lb, still down 0.49 cent/lb from a week ago. As a result, US MW duty-paid financials’ backwardation persists.

More details in full report.

3. LME Cash–3M contango nears zero as tight conditions prevail around December– January (bearish for premiums).

The Cash–3M contango tightened today to a new nine-month low of $1.00 per mton from yesterday’s $3.50 per mton as nearby tightness intensified through January: the December–January backwardation intensified to $14.00 per mton from $13.00 per mton, while the Cash–December contango narrowed to $12.00 from yesterday’s $14.50 per mton. Highly concentrated December positions are supportive of a steepening backwardation.

More details in full report.

4. US BILLET UPDATE. US billet imports decline again in October; ongoing 2020 contract negotiations slowing down further.

US offshore billet imports declined for a third-straight month in October after weakening by more than 18% y/y to 60 kmton mainly due to smaller volumes from India, the Middle East, and South Korea. This is the first three-month import volume decline since early 2017, causing US offshore imports to drop 15% y/y so far in H2 2019 after jumping by 25% y/y in H1 2019. Ongoing import decline seems aligned with a regional extrusion demand decline worsening in the second half of the year.

More details in full report.

5. EUROPEAN BILLET UPDATE. Regional billet oversupply lingers; Q1 2020 billet contracts for Tier 2 and 3 fall to as low as $290 per mton.

The oversupply of billet units in the European market continues. In fact, we are hearing from the trade of unconfirmed offers in Italy as low as $280 per mton from some traders with Tier 3 billet units. Meanwhile, European Q1 2020 contractual negotiations are ongoing, with premium declines of $15–$30 per mton seen across the board. As of today, we see Q1 contractual billet premiums hovering around $290–$340 per mton in Italy, $305–$330 per mton in Spain, $300–$330 per mton in Poland, $315–$345 per mton in UK, $320–$355 per mton in Northern Europe and around $310–$340 per mton in Portugal.

More details in full report.

6. China’s aluminum prices remain in range-trading mode near technical support zone.

SHFE two-month aluminum prices closed the overnight session virtually unchanged at 13,825 yuan per mton ($1,738 per mton, excluding VAT). Prices faced downward pressure from weaker-than-expected manufacturing data from China but rebounded from an intraday low of 13,775 yuan per mton ($1,732 per mton, excluding VAT) supported by reports of falling domestic visible primary aluminum inventories, expectations of economic stimulus, and a rebound in LME aluminum prices. Meanwhile, China’s official manufacturing index remained in contraction territory in October, weakening to an eight- month low of 49.2, which suggests that Chinese end-user demand continues to struggle.

More details in full report.