Taken at face value, the impact of today’s cyber-attack would be bearish on LME prices (if anything)
LME aluminum prices closed at a three-month high on Hydro-related uncertainty and short- term momentum. LME 3M aluminum prices closed the session up 1.3% or $25.50 per mton at a new year-to-date high of $1,946 per mton. Prices climbed to a three-month high early in the session after initial reports about a cyber-attack against Norsk Hydro, and then managed to sustain gains amid prevailing short-term technical momentum. The rest of the base metals complex also experienced solid gains today amid improving sentiment toward demand in China and a weaker US dollar.
At face value, the impact of today’s cyber- attack could be bearish on LME prices, if anything. As we reported earlier today, at face value, today's cyber-attack and its negative impact on Hydro's downstream operations (which temporarily reduces demand for primary/secondary aluminum) is, if anything, bearish for LME prices. For more details, please see the following section.
From a technical standpoint, odds have risen for short-term rally toward key resistance at $2,000 per mton. Technically, if prices confirm a break outside the $1,930 per mton threshold tomorrow, fresh technical buying (mainly short covering) could unleash further gains toward key technical resistance at the 200-day moving average zone (currently $1,980–$2,000 per mton).
If the breakout attempt fails, prices would likely face strong technical selling toward $1,850 per mton.
From a medium-term standpoint, we continue to believe that prices have not bottomed out yet. Medium-term technical indicators remain at their most bearish in two years, suggesting that a revisit of two-year lows near our $1,770 per mton target remains in the cards. Technically, support at the key $1,770 per mton threshold needs to hold to prevent a new leg toward levels as low as $1,510 per mton (in a less likely, downside scenario).
Structurally, the world aluminum industry is in a cyclical bearish stage, underpinned by weakening aluminum demand, expectations of booming primary aluminum production, inventory buildups at visible and off-warrant warehouses, falling smelting production costs (for alumina, carbon products, and energy), ample scrap supply at deep discounts, a strong US dollar, and booming Chinese exports. We don’t see a reversion to this backdrop anytime soon.