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LME prices posed to fall further; US billet premiums decline on demand contraction and booming availability; MW financials up slightly for 2020

Executive Summary

1. LME prices fall to a six-week low of $1,770 per mton; odds increase for a new leg down toward $1,670 per mton.

LME 3M aluminum prices closed the session down 0.6% or $10 per mton, at a six-week low of $1,770 per mton. In weekly terms, prices declined by 1.8% or $32 per mton, accumulating a two-week drop of 4.2%. Prices extended yesterday’s losses, closing at a session-low, as concerns about world economic growth intensified due to the escalation of US-China tensions, which came on top of Wednesday’s bearish monetary policy update by the Fed, and the ongoing contraction in world manufacturing activity (consistent with what HARBOR has been anticipating since early last year). If LME 3M aluminum prices break below June’s low of $1,745 per mton, then $1,670 per mton would become the next immediate price target.

More details in full report.

2. NORTH AMERICAN BILLET UPDATE. US spot billet premiums decline to 7.5-10.0 cent/lb as demand contracts while availability booms. Bearish mating season for 2020 contracts expected ahead.

HARBOR's US billet spot upcharge delivered for well-known/traditional suppliers has fallen today to 8.0-10.0 cent/lb from 8.0–11.0 cent/lb, its lowest level in 19 months. Similarly, HARBOR's US billet spot upcharge delivered for nontraditional suppliers has fallen today to 7.5-8.5 cent/lb from 7.5–10.0 cent/lb. North America billet demand is contracting, with various extruders seen their extrusion demand declining at double digit rates y/y while lead times are holding around two weeks. Oversupply of billet units abroad is pushing offshore suppliers to redouble their sales efforts in North America as the US remains the most attractive billet destination worldwide with netbacks been around $50-$70 per mton (premium profitability after logistics costs) higher than elsewhere

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3. CME MW duty-paid financials marginally up for 2020 to 17.20 cent/lb on strong volumes.

Preliminary data indicates that CME MW duty-paid premium financials for 2020 were transacted today at 17.20 cent/lb, increasing by 0.05 cent/lb from a week ago (when the most recent volume was transacted for the whole period). Today’s preliminary volume was a record-high for these contracts, equivalent to 30,000 mton.

More details in full report.

4. LME Cash–3M contango widens a six-week high (supportive for P1020 spot premiums across the world).

The Cash–3M contango widened to a six-week high of $29.00 per mton from $27.00 per mton, as the August–October contango steepened to $8.50 from $8.00 per mton, and the September–October contango loosened to $6.00 from $5.75 per mton. Meanwhile, the Cash– August contango settled without a change from yesterday’s $9.50 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.

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5. SECTION 232 UPDATE. More exemptions granted for over 880 kmton of aluminum products, mainly a renewal of past exemptions for aluminum cansheet.

Section 232 tariff exemptions granted in the last week of July totaled about 888 kmton of aluminum products, according to our analysis of documents posted by the Department of Commerce's Bureau of Industry and Security (BIS) between July 24 and July 31, 2019. The largest granted volumes were for renewal exclusions requests for cansheet, from Ball Metal Beverage Container Corp. According to the official exclusion request process guidelines, renewal requests can be submitted ahead of the expiration of an existing exclusion (to avoid the interruption of tariff relief), but do not guarantee the approval of the renewal request.

More details in full report.

6. China’s aluminum prices extend losses amid escalating trade tensions.

SHFE two-month aluminum prices closed the overnight session down 0.4% at a 13,800 yuan per mton ($1,761 per mton, excluding VAT). Prices extended yesterday’s losses, testing intraday levels as low as 13,755 yuan per mton ($1,754 per mton, excluding VAT), amid escalating trade tensions between the US and China after President Trump announced yesterday that a new Section 301 Tariff of 10% will be imposed on $300 billion of additional Chinese goods from September 1. Prices closed the week down 0.7% w/w as demand growth concerns deepened.

More details in full report.