Subscription inquiry

LME prices test resistance again at $1,850 per mton; MW duty-paid spot premium at sixteen-month lows; Inventory buildups accelerate in Asia

LME prices test resistance again at $1,850 per mton; MW duty-paid spot premium at sixteen-month lows; Inventory buildups accelerate in Asia

Executive Summary

1. LME prices again attempting a short-term breakout above $1,850 per mton; technical selling and falling oil prices cap gains.

LME 3M aluminum prices closed the session at $1,850 per mton, up 0.4% or $8 per mton from yesterday. Prices continued to be underpinned by better-than-expected US economic data (June retail sales and manufacturing output), testing an eight-week intraday high of $1,856 per mton before gains were capped by: a) technical selling above the $1,850 per mton mark (as expected), b) oil prices plunging by more than 2%, and c) the US dollar strengthening toward a one-week high.

More details in full report.

2. US MW PREMIUM ALERT. MW duty-paid spot premium unchanged at sixteen-month lows; downside limited.

As HARBOR anticipated, despite Canada's soft quota exemption, journalistic MW premium spot trade at 18 cent/lb. Actual market spot MW premiums have stabilized at 16 cent/lb, or at a discount of around 2 cent/lb below journalistic references given: a) range trading LME cash prices; b) range trading ocean and freight rates; c) scrap prices still trading near record discounts; d) range trading of LME spreads; e) spot activity has been almost nil. We do not see much downside from here.

More details in full report.

3. LME aluminum inventories spike in Asia by the most in two months.

LME warehouses in Asia experienced their largest inflow (warranting) in two months, totaling 56,600 mton across Johor, Malaysia (51,400 mton) and Singapore (5,200 mton). Asian LME inventory buildups have added up to 82,725 mton so far this week, ahead of tomorrow’s monthly prompt-date for LME futures. After LME inventories dissipated in June, buildups have accelerated in July amid a high concentration of warrant holdings and historically low availability in LME live aluminum inventories increasing pressure on holders of expiring financing positions.

More details in full report.

4. LME Cash–3M contango remains unattractive as tightness persist ahead of October (bearish for spot premiums).

The LME Cash–3M contango widened to $18.50 per mton from $18.00 per mton, as nearby contangos widened after August: the August–September contango widened to $5.75 from $5.50 per mton, and the September–October contango widened to $5.75 from $5.50 per mton. Meanwhile, the Cash–August contango narrowed to $10.00 per mton from $10.25 per mton. As a result, we estimate that the Cash–3M contango continues to be unsupportive of cash-and-carry deals for most players (bearish for spot premiums as the financing of metal becomes uneconomic).

More details in full report.

5. China’s aluminum prices close at a two-week high, testing interim resistance.

SHFE two-month aluminum prices closed the overnight session up 0.3% at a two-week high of 13,885 yuan per mton ($1,787 per mton, excluding VAT). Prices sustained positive momentum triggered by yesterday’s domestic industrial production data but capped gains after facing resistance around the 100-day moving average threshold, which stands near 13,900 yuan per mton ($1,790 per mton, excluding VAT). Technically, SHFE aluminum prices are in a short- and medium-trend downward trend.

More details in full report.