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Erratic LME behavior continues; North American wire rod premiums supported by regional tightness

Executive Summary

1. LME prices attempting a short-term breakout toward $1,850 per mton; behavior still seems somewhat erratic.

LME 3M aluminum prices closed the session at $1,820 per mton, up 0.6% or $11 per mton from yesterday. Prices climbed by about 1.2% ($22 per mton) right before the end of the session amid intense technical buying around the $1,800 per mton mark and imminent primary aluminum smelting cuts in Bosnia. Nevertheless, the intraday bounce in aluminum looked somewhat erratic, considering that the share prices of US primary aluminum producers experienced considerable intraday losses, while copper prices fell due to demand concerns and the US dollar strengthened. The next short-term target appears to be $1,850 per mton, but erratic movements continue to be expected.

More details in full report.

2. US EC WIRE ROD UPDATE. US EC wire rod contract premiums for 2020 to increase on tightness, mating season starts earlier than usual.

Expected increase is for as much as 2.0–4.0 cent/lb as: a) domestic rod suppliers seem to be sold out after Sural's production halt earlier this year, b) some offshore rod suppliers also seem to be sold out after significantly increasing their shipments to the region this year, and c) various regional consumers are starting earlier than usual to look for 2020 volumes to secure supply in what has become a "sellers' market" amid a stable domestic cable market demand. Overall, we expect 2020 contractual premiums to vary depending on consumer size and suppliers' type, with upcharges (over MW) ranging between 12.0 cent/lb and 16.0 cent/lb for large consumers and going as high as 15.0–20.0 cent/lb for smaller consumers.

More details in full report.

3. MW Duty-Unpaid P1020 premium up to 9.08–9.64 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at a new two-month high of 9.08–9.64 cent/lb, increasing from yesterday’s 8.92–9.49 cent/lb amid today’s significant tightening in nearby contangos increasing the financial cost of metal in transit.

More details in full report.

4. LME Cash–3M contango narrows further to a new two-month low amid tightening contangos after August.

The LME Cash–3M contango tightened to a new two-month low of $14.00 from $19.00 per mton, mainly as a result of a significant narrowing in the August–September contango to $2.00 from yesterday’s $5.50 per mton, while the September–3M contango flattened to $1.00 from $2.75 per mton. Meanwhile, the Cash–July contango held without a change from yesterday at $2.50 per mton, and the July–August contango widened to $8.50 from $8.25 per mton. As a result, we estimate that at its current level the Cash–3M contango remains 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.

5. China’s aluminum prices manage to moderate losses but downward momentum persists.

SHFE two-month aluminum prices closed the overnight session down 0.1% at 13,755 yuan per mton ($1,767 per mton, excluding VAT). In intraday terms, prices initially tested levels as low as 13,690 yuan per mton ($1,759 per mton, excluding VAT) amid concerns about downstream demand and falling alumina prices but managed to reverse most losses amid higher LME aluminum prices. SHFE aluminum prices are in a short-term technical downward trend targeting 13,500 yuan per mton ($1,740 per mton, excluding VAT).

More details in full report.