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LME prices fall to $1,800 per mton; Smelting expansion announced in Asia while restarts in Spain are considered

Executive Summary

1. LME prices close the month at the $1,800 per mton threshold; downward pressure could intensify tomorrow as US dollar rallied to a two-year high after the LME session had ended.

LME 3M aluminum prices closed July at $1,800 per mton, virtually unchanged in monthly terms and 0.3% or $3 per mton lower from yesterday. Prices initially experienced gains due to better-than-expected Chinese manufacturing activity data, but faced downward pressure during most of the session as: a) the US dollar held near two-month highs, b) China’s government hinted that it will not implement stimulus measures for the property sector, and c) investors looking ahead to comments from the Fed regarding the economic outlook and hints of future policy action. Aluminum prices could open lower tomorrow, as the US dollar surged to a fresh two-year high after the Fed’s interest rate cut announcement (aluminum was no longer trading at this moment).

More details in full report.

2. EUROPE ALUMINUM ALERT. Avilés and La Coruña primary aluminum smelters and casthouses in Spain to be acquired by PARTER Capital Group, removes supportive argument for billet premiums.

Alcoa announced today it completed the sale of its Avilés and La Coruña primary aluminum smelters and casthouses in Spain to PARTER Capital Group. The transaction includes the smelting facilities (currently curtailed), casthouses (producing secondary billet), as well as a paste plant in La Coruña (operating). At full capacity, Avilés can produce as much as 93 kmton of primary aluminum per year, while La Coruña's output could reach 87 kmtpy. A restart of smelting operations is considered, but no details were given. We see that this development effectively eliminates a bullish/supportive argument for European billet premiums in 2020.

More details in full report.

3. ALUMINUM MARKET ALERT. Another smelting expansion has been announced, 320 kmtpy in Malaysia.

Press Metal announced today it plans to expand its primary aluminum smelting capacity in Malaysia to 1.08 million mtpy from the current 760 kmtpy after the signing of a power purchase agreement for a fifteen-year period that would grant them up to 500 MW of electricity. The timeline of this project and the required investment were not disclosed in today's stock exchange filing. These expansion plans reinforce our expectations of a growing surplus ahead, and for Asia to retake its role as the world's fastest growing primary aluminum-producing region after 2020.

More details in full report.

4. LME Cash–3M contango widens further amid looser nearby conditions (supportive for spot premiums).

The Cash–3M contango eased further to $27.75 per mton from yesterday’s $25.50 per mton amid a significant widening at the front end of the curve: the Cash–August contango widened to $11.00 from $9.25 per mton, and the August–October contango steepened to $8.00 from $7.50 per mton. As a result, we estimate that the Cash–3M contango remains supportive for spot premiums around the world; it is wide enough for most players to profitably finance short-term cash-and-carry deals.

More details in full report.

5. China’s aluminum prices face downward pressure amid demand growth concerns.

SHFE two-month aluminum prices closed the overnight session virtually unchanged at 13,910 yuan per mton ($1,789 per mton, excluding VAT) and fell in after-hours trading until reaching a one-week low of 13,840 yuan per mton ($1,780 per mton, excluding VAT). Prices initially found support from domestic data indicating a slight improvement in July’s manufacturing activity but later faced downward pressure from downbeat sentiment around the property sector amid absent signs of economic stimulus measures.

More details in full report.