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LME prices remain unable to consolidate gains; European 2020 foundry premiums expected to decline; New Section 232 tariff exemptions

Executive Summary

1. LME prices down as technical selling continues; failure to consolidate above $1,850 per mton could trigger a short-term correction.

LME 3M aluminum prices closed the session down 0.2% or $3 per mton at $1,847 per mton. Prices initially fell to an intraday low of $1,836 per mton as the base metals complex experienced downward pressure from renewed uncertainty about US-China talks. However aluminum managed to recover most of the previously lost ground late in the session, as the US dollar softened after the release of downbeat US construction sector data. We continue to expect LME aluminum prices to behave somewhat erratically amid short-term technical selling pressure above $1,850 per mton.

More details in full report.

2. LME Cash–3M contango narrows amid increased tightness around October (bearish for spot premiums).

The LME Cash–3M contango narrowed to $17.50 per mton from $18.50 per mton, mainly as a result of the emergence of a $1.00 per mton backwardation in the October–3M segment (around the monthly prompt date). Meanwhile, the Cash–August contango narrowed to $9.50 per mton from $10.00 per mton, but was offset by the August– September contango easing to $6.00 per mton from $5.75 per mton, and the September– October contango widening to $3.00 from $2.75 per mton. 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.

3. EUROPE PFA UPDATE. European foundry 2020 premiums expected to decline as auto sector weakness is expected to linger.

The European primary foundry alloy (PFA) market is long, with various suppliers open to discussing new business opportunities while spot demand across the region remains largely subdued. As of today, both the European and the North American PFA markets seem be in an oversupplied condition, generating confirmed idled open capacity at several offshore and regional PFA production plants. Meanwhile, European PFA consumers are being conservative for the remaining of the year as regional demand uncertainty seems to be impacting consumer's appetite,.

More details in full report.

4. SECTION 232 UPDATE. New exemptions granted for over 240 kmton of common alloy sheet (5052 and 3003).

Granted exemptions totaled at least 244 kmton of aluminum sheet, according to documents posted today by the Department of Commerce's Bureau of Industry and Security (BIS). Our preliminary analysis indicates that the largest exempted volumes were for: a) Empire Resources, which received exemptions for 219 kmton of aluminum alloyed cold rolled coils to be sourced from India, Indonesia, South Africa, and Taiwan; b) AA Metals, which was granted exemptions for about 25 kmton of aluminum alloyed cold rolled coils to be sourced mainly from Turkey, Brazil, and Slovenia.

More details in full report.

5. China’s aluminum prices still capped by technical resistance and demand uncertainty.

SHFE two-month aluminum prices closed the overnight session virtually unchanged at 13,885 yuan per mton ($1,788 per mton, excluding VAT). Prices faced technical resistance around their 100-day moving average again and retreated in after-hours toward 13,825 yuan per mton ($1,780 per mton, excluding VAT) amid concerns about a lack of progress around US-China trade talks. Technical indicators for SHFE prices remain bearish.

More details in full report.