Subscription inquiry

Dec–Jan “back” intensifies (bearish premiums); US Foundry spot and 2020 contract premiums decline; European billet premiums fall to as low as $290 per mton

Dec–Jan “back” intensifies (bearish premiums); US Foundry spot and 2020 contract premiums decline; European billet premiums fall to as low as $290 per mton

Executive Summary

1. LME prices remain in bearish mode, eyeing initial support at $1,680 per mton.

LME 3M aluminum prices closed the week at $1,719 per mton, hardly changed from yesterday but accumulating a weekly decline of 0.9% or $16 per mton. Concerns among market participants intensified this week amid data showing that US manufacturing activity contracted in September by the most in ten years, but prices managed to find support at a thirty-two-month intraday low of $1,705 per mton, partly as the US dollar weakened amid growing expectations for the Fed to cut interest rates at least once this quarter. Over the last three weeks, LME 3M prices have plunged by 5.0% or $93 per mton. Technically, today’s close further validates the idea that prices are targeting the $1,680–$1,550 per mton zone.

More details in full report.

2. LME Cash–3M contango tightens further to new five-month low; December–January “back” intensifies again to double digits (bearish for spot premiums).

The LME Cash–3M contango narrowed today to a new five-month low of $11.00 per mton from yesterday’s $13.75 per mton as a result of tightening conditions through January: the Cash–December contango narrowed to $18.50 per mton from $20.00 per mton, while the December–3M backwardation intensified to $7.50 from $6.25 per mton. Specifically, the backwardation between December 10, 2019, and January 15, 2020, steepened to $12.00 per mton from a $10.25 per mton “back” on Thursday. At today’s level, estimate that the Cash–3M contango is not supportive of cash-and-carry deals for most players as the financing of metal becomes uneconomic (bearish for spot premiums).

More details in full report.

3. US PFA ALERT. US PFA spot and 2020 contract premiums declining amid regional PFA oversupply, the ongoing GM strike, and weakening US auto sales.

The US spot market demand remains practically dead, and some suppliers seem offering lower PFA premiums in the market to try to lure some consumers at a time when downside pressure for the North American auto industry is intensifying due to significant sales declines from various OEMs like Toyota, Honda, Nissan, Subaru, and Hyundai. Some confirmed PFA shipment delays do not seem to be causing much vexation considering declining regional market demand. Meanwhile, the GM union strike lingers, now in its nineteenth day. Looking ahead, we expect the 2020 PFA contractual premiums to decline 1.0–2.5 cent/lb y/y.

More details in full report.

4. US BILLET ALERT. US 2020 billet negotiations may not be finalized until late in the year; buyers opting for eleven-month contracts.

Some 2020 contract billet negotiations could extend until late this year/early next year as several extruders seem to be aware of the reigning oversupplied billet market and expectations for these conditions to linger and intensify ahead. Meanwhile, various 2020 annual contracts have been signed for eleven months due to extruders’ current higher- than-expected billet inventories, weakening demand, and bearish 2020 regional demand prospects. Extruders’ supply flexibility demands have also risen, as more seem to be asking for more flexible supply volume arrangements in case demand weakens next year by more than originally expected.

More details in full report.

5. EUROPEAN BILLET UPDATE. Spot billet premiums in Italy fall below $300 per mton while decline continues in the rest of Europe.

Italy billet spot premiums have fallen below the $300 per mton threshold with the latest confirmed transactions now taking place closer to or below the low end of our new spot premium range, which fell today to $290–$330 per mton from $310–$335 per mton previously. Current regional oversupply conditions, strong competition for market share, and expanding billet capacities of some suppliers continue to push some suppliers to offer units at lower premium levels. Additionally, our field intelligence indicates that some unsold offshore billet inventories seem to have accumulated in ports in Italy and Spain.

More details in full report.