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Prices avert bearish weekly close but remain testing crucial support zone; New Section 232 granted exemptions for foil

Executive Summary

1. Prices fall from a one-week high but avert a new bearish weekly close price; support at the $1,745-$1,770 per mton zone remains crucial.

LME 3M aluminum prices closed the session down 0.4% or $7 per mton at $1,771 per mton. Prices initially increased to an intraday high of $1,784 amid higher oil prices but fell later in the session amid end-of-week profit taking and concerns about US-China trade tensions. In weekly terms, prices hardly changed and ended practically at $1,770 per mton for the second-consecutive week. If support at $1,745 per mton fails $1,680 per mton would become the next technical target

More details in full report.

2. SECTION 232 UPDATE. Newly granted exemptions this month have been mainly for foil, some cansheet and autosheet also received exclusions.

So far in August, granted exemptions amount to 29 kmton, according to documents posted by the Department of Commerce's Bureau of Industry and Security (BIS). Manakin Industries was granted the bulk of exemptions on aluminum foil, for about 11.7 kmton (1xxx and 8xxx series).

Additionally, Novelis was also granted exemptions on aluminum sheet volumes, including 5.0 kmton of cansheet (3104-alloy) and 1.1 kmton of cold-rolled aluminum sheet (5182- alloy).

More details in full report.

3. US ROLLED PRODUCTS UPDATE. Offshore producers alleviate US common alloy sheet shortage; OARC moves to top spot

The supply gap of common alloy aluminum sheet left by falling Chinese imports due to hefty duties has been all but filled by imports from other regions. OARC has supplied 60 kmton of common alloy aluminum sheet to the US market through the first half of 2019, which is an increase of 32 kmton (or 112%) compared to the same period last year. Overall, common alloy aluminum sheet imports (ex-China) into the US rose to 353 kmton in the first half of 2019, compared to 235 kmton through the same period in 2018; anincrease of 118 kmton or 50%.

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4. EUROPEAN BILLET UPDATE. Q4 contract billet negotiations at $315-$355 per mton; spot premiums in Poland and Italy weaken further; Alcoa's San Ciprian curtailing billet production.

European Q4 contractual negotiations continue with majority of recently confirmed contracts agreed between $320-$355 per mton, and a small number of contracts been closed as low as $315 per mton in Southern Europe. Some regional extruders are waiting further before negotiating Q4 volumes as they are working down higher than expected billet inventories, while communicating to suppliers they would prefer to negotiate after the summer holidays. Meanwhile, European primary billet production continues to weaken as Alcoa Spain announced this week a second production cut of 6% at its San Ciprian plant due to high energy costs.

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5. LME Cash–3M contango narrows slightly, remains supportive for spot premiums.

The Cash–3M contango narrowed to $29.00 per mton from yesterday’s $29.25 per mton amid a slight tightening at the front-end of the curve: The Cash–September contango narrowed to $14.25 from $14.50 per mton yesterday, while the September–3M contango settled without a change at a $14.75 per mton. Nevertheless, we estimate that the Cash–3M contango remains supportive for spot premiums around the world as it is wide enough for most players to profitably finance short-term cash-and-carry deals.

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6. China’s aluminum prices regain some ground but keep limiting gains at key threshold.

Prices closed the week higher but faced strong resistance around the 200-day moving average threshold SHFE two-month aluminum prices closed Friday’s overnight session up 0.5% at 13,910 yuan per mton ($1,743 per mton, excluding VAT). Prices sustained early gains amid technical buying and reported net inventory withdrawals at SHFE warehouses; nevertheless, gains remained limited by technical resistance around the 200-day moving average threshold.

More details in full report.