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New multi-year low monthly close for LME prices; Demand outlook deteriorates for China; CME MW duty-paid financials firm up (as expected)

Executive Summary

SPECIAL NOTE: HARBOR’s Daily Aluminum Commentary will not be published next week; as our entire team will be traveling to Chicago for the HARBOR's 12th Aluminum Outlook Summit.

1. LME PRICE ALERT. Prices close May at a fresh 29-month low, technically raising the odds of an eventual breach of the key $1,770 per mton threshold as the outlook continues to deteriorate.

Prices closed Friday’s session up 0.7% from yesterday at $1,795 per mton, which was not enough to prevent the setting of a new twenty-nine-month low in both monthly and weekly terms. Today, prices were supported above an intraday low of $1,781 per mton, but gains were capped by further unsupportive market developments as: a) China’s manufacturing activity contracted by more than expected in May, b) tensions between the US and major trading partners escalated further, and c) oil prices lost another 2% and confirmed entering into a technical bearish mode. As mentioned yesterday, the medium- term technical outlook continues to weaken, underscoring the possibility of a break below the key $1,770 per mton support threshold.

More details in full report.

2. CHINA ALUMINUM ALERT. Chinese manufacturing suffers from worst contraction in over ten years; bearish for aluminum demand and prices.

China’s official PMI index fell again below the 50-point threshold, indicating m/m contraction. In May, the index posted a three-month low reading of 49.4, weakening month-to-month by the largest margin in fifteen months (down from 50.1 in April) and falling back inside contraction territory amid a steeper contraction in new export orders. China’s manufacturing activity has contracted in four of the last six reported months. Domestic end-user demand keeps struggling to regain momentum, having experienced no growth so far this year amid ongoing trade tensions and a contracting domestic auto sector.

More details in full report.

3. China’s aluminum prices hold steady despite downbeat manufacturing data.

SHFE two-month aluminum prices closed the overnight session virtually unchanged at a week low of 14,150 yuan per mton ($1,813 per mton, excluding VAT). Prices managed to hold some ground through Friday’s entire session—despite China’s manufacturing activity officially falling back into contraction in May—as support from domestic alumina prices remained firm and LME aluminum prices regained partial ground. Technically, SHFE aluminum prices are still in an upward trend, targeting expected resistance at 14,500 yuan per mton ($1,860 per mton, excluding VAT).

More details in full report.

4. As HARBOR anticipated, CME MW duty-paid financials for H2 2019 firm up to 18.05 cent/lb.

Preliminary data indicates that CME MW duty-paid premium financials for H2 2019 increased today to 18.05 cent/lb, up 0.06 cent/lb from yesterday (when the most recent volume was transacted for this period) and rebounding by as much as 1.35 cent/lb after plunging to a one-year low of 16.70 cent/lb on May 20 as a result of the exemption of Canada from Section 232 Tariffs in exchange for a soft quota. Today’s preliminary transacted volume for H2 2019 contracts was equivalent to 8,300 mton. As a result of today’s activity, US MW duty-paid financials backwardation has narrowed.

More details in full report.

5. LME Cash–3M contango narrows further, as nearby tightness intensifies some more (bearish for spot premiums).

The LME Cash–3M contango tightened to $21.50 per mton from a previous $24.50 per mton, as contangos narrowed all the way through August for a second-consecutive session: the Cash–June contango tightened to $4.50 from $6.00 per mton, the June–July contango tightened to $7.25 from $7.50 per mton, and the July–August contango tightened to $8.50 from $9.75 per mton. As a result, we estimate that the Cash-3M contango is no longer supportive of cash-and-carry deals for most players at the current level (bearish for spot premiums as the financing of metal becomes uneconomic).

More details in full report.

6. US TARIFFS ON MEXICO ALERT. US Tariffs on Mexican goods not expected to alter aluminum trade flow.

President Trump has announced his intention to impose a 5% Tariff on US imports from Mexico that could increase to 25% by October. Even if a 25% Tariff were to be imposed, we do not expect much of a change in the trade flow of aluminum inputs and products. Currency depreciation and other strategic factors would still make Mexico the best sourcing option for the US manufacturing base.

More details in full report.

7. EUROPEAN BILLET ALERT. All latest confirmed Q3 billet deals below $400 per mton; Spot billet premiums decline in Spain, Italy, Poland, and the UK; Most Q3 contractual billet negotiations expected to be completed within a week

From a supplier standpoint, Q3 contract negotiations seem to have been focused more on volume than on pricing as the European billet market is oversupplied with plenty of billet units available, as: a) Most billet producers are long; b) Several traders have been aggressively marketing their billet units; c) Plenty of billet units remain available at several ports.

More details in full report.

8. HARBOR FIRST. Rusal to appoint George English as Technical Customer Support and Product Development Director.

HARBOR has learned and confirmed that George English will lead Rusal's technical customer support and product development teams. An official announcement is expected early next week. Over the last two decades, Mr. English has held technical roles at three other primary aluminum producing companies and more recently was Casthouse Technical Support Manager at Pyrotek. George English will report to Roman Andryushin, CEO, Rusal Marketing and Sales and Marketing Director of Rusal Group.

More details in full report.