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MW financials for 2020 plunge to nineteen-month lows; US spot billet premiums plummet amid unprecedented oversupply

Executive Summary

1. As anticipated, LME prices plunge toward $1,770–$1,745 per mton support.

LME 3M aluminum prices fell by 1.6% or $28.50 per mton, closing at an intraday low of $1,779 per mton. Prices declined by the most in four weeks, and unwound the rally that took place during the first two trading days of November, as: a) technical selling intensified after the $1,800 per mton mark was breached, while b) prices for base metals fell due to growing caution regarding the prospects of an interim US-China trade deal and disappointing Chinese economic data (credit growth and producer prices). Technical support is expected at the $1,745–$1,770 per mton range.

More details in full report.

2. CME MW duty-paid financials for 2020 plunge to a nineteen-month low of 15.50 cent/lb (premium backwardation persists).

Preliminary data indicates that CME MW duty-paid premium financials for H1 2020 were transacted today at a nineteen-month low average of 15.51 cent/lb, down 0.84 cent/lb from Friday. Meanwhile, preliminary data indicates that CME MW duty-paid premium financials for H2 2020 declined to a nineteen-month low average of 15.21 cent/lb, down 0.96 cent/lb from Friday. MW financials plunged today in response to Friday’s record decline of 1.00 cent/lb in journalistic spot premiums amid the ongoing backwardation and oversupply of aluminum units in North America.

More details in full report.

3. LME Cash-3M backwardation eases but remains unsupportive of premiums.

The Cash–3M backwardation eased to $2.50 per mton from Friday’s $9.75 per mton amid easing conditions through February. The December–January backwardation eased for the first time in eight sessions to a still tight $14.50 from $17.50 per mton, and the January– 3M contango loosened to $6.25 from $2.75 per mton. Nevertheless, the Cash–3M backwardation remains short-term bearish for spot premiums around the world.

More details in full report.

4. US spot premiums for 6063 billet drop to multi-year lows of 5.5–9.0 cent/lb; Chinese billet has been imported into the US since late October.

US billet imports from China currently total 355 mton. Based on our visibility, this is the first time Chinese-origin billet units have made their way to the US, which confirms billet is now the second aluminum value-added product export from China that has made its way to the US, following increasing PFA volumes (12,520 mton) that have arrived into the country so far this year. Meanwhile, the low end of the US spot billet premiums has now fallen to multi-year lows as per the latest confirmed spot transactions falling closer to the low end of our new range.

More details in full report.

5. ALUMINUM PRODUCTION ALERT. 99% of Western World smelters cash profitable so far in November; smelting profitability supportive of upcoming restarts and expansions.

According to HARBOR estimates, 99% of operating smelters in the Western World is cash profitable after considering income from regional premiums and casthouse products mix; the exception is for some primary aluminum operating smelters in Africa and Europe (about 250 kmtpy capacity in total). Indeed, our preliminary assessment indicates that, so far in November, the average cash-profit margin for smelting operations in the Western World has returned to its historical monthly average estimated at around 20%. This scenario reinforces our expectations for no significant production curtailments in the coming months and remains supportive for upcoming restarts and expansions.

More details in full report.

6. China’s aluminum prices unable to consolidate upward breakout amid economic slowdown concerns.

SHFE two-month aluminum prices closed the overnight session down 0.5% at 13,965 yuan per mton ($1,763 per mton, excluding VAT) and extended losses in after-hours trading until finding support at their current 200-day simple moving average threshold. Prices fell amid technical selling pressure around Friday’s six-week highs and downbeat domestic economic data for October; new yuan loans fell more than expected, while producer inflation contracted y/y for the fourth-consecutive month.

More details in full report.