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MW premium Q1 2020 financials down to 17.50 cent/lb; More LME inventory buildups in Asia

Executive Summary

1. LME prices test again key resistance zone at $1,745–$1,770 per mton amid technical bounce and short covering. However, $1,680 per mton remains the immediate price target.

LME 3M aluminum prices closed the session up 0.3% or $5.50 per mton at $1,751.50 per mton. Prices tested an intraday high of $1,760 per mton, seemingly supported by the continuation of yesterday’s short-covering momentum (speculators buying back previous short positions), but trimmed gains late in the session amid expected technical resistance and mounting tensions between the US and China. The surge of the last two weeks in speculative selling suggests it has been a short-covering rally, which usually implies high odds of reversal. Technically, LME aluminum prices are still targeting $1,680 per mton.

More details in full report.

2. LME spread tightness persists despite a slight easing in the December–January backwardation (still bearish for spot premiums).

The LME Cash–3M contango eased but remained in single digits at $7.75 per mton from yesterday’s eight-month low of $5.25 per mton. The Cash–December contango widened to $17.00 from $15.25 per mton, while the December–3M backwardation eased to $9.25 from $10.00 per mton. 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 buildups continue in Asia (as expected).

LME warehouses in Asia experienced another inflow (warranting), totaling 5,050 mton across Port Klang, Malaysia. As a result, the cumulative inflow of 111,075 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. CME MW duty-paid financials for Q1 2020 down to 17.50 cent/lb (backwardation persists).

Preliminary data indicates that CME MW duty-paid premium financials for Q1 2020 declined to 17.50 cent/lb from an average of 17.65 cent/lb a week ago. Meanwhile, Preliminary data indicates that CME MW duty-paid premium financials for Q4 2019 quoted today at an average of 17.78 cent/lb, unchanged since the beginning of October. As a result, US MW duty-paid financials’ backwardation persists.

More details in full report.

5. SECTION 232 UPDATE. BIS reverses about 38 kmton of previously granted exemptions for aluminum sheet amid existing objections.

On October 4, the Department of Commerce's Bureau of Industry and Security (BIS) posted new documents denying exclusion requests (for about 38 kmton of 3003 and 5052 alloy sheet) that had been posted as granted exemptions just three weeks ago. The denied requests had received objections in May from companies including TCI Texarkana, Constellium, and Arconic.

More details in full report.

6. China’s aluminum prices maintain technical support as trading activity resumes.

SHFE two-month aluminum prices closed the overnight session up 0.2% at 13,980 yuan per mton ($1,732 per mton, excluding VAT SHFE). Prices sustained gains triggered by upbeat domestic manufacturing activity data released before the holidays but faced downward pressure after testing intraday levels as high as 14,040 yuan per mton ($1,739 per mton, excluding VAT). SHFE aluminum prices continue to trade between the technical support range of 13,850–14,000 yuan per mton ($1,715–$1,735 per mton, excluding VAT).

More details in full report.