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LME price falls further amid world demand contraction (more price declines expected); US imports of Chinese aluminum products to face new 10% Tariff; APEX Act keeps gaining support

Executive Summary

1. As anticipated, LME prices fall to a one-month low as world manufacturing contracts, oil prices plummet and trade tensions escalate. LME prices could fall to as low as $1,670 per mton in next sessions.

LME 3M aluminum prices closed the session at a one-month low of $1,780 per mton, down 1.0% or $20 per mton from yesterday. As anticipated, prices declined since the start of the session after yesterday’s bearish monetary policy update. Moreover, during the second half of the session, prices fell to as low as $1,776 per mton amid data confirming world manufacturing continued to contract in July, and as US manufacturing activity growth deteriorated to a new three-year low while construction spending contracted unexpectedly. All of this is 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. World manufacturing activity weakened further in July as conditions deteriorated in the US, while contraction took place in China, Europe, Japan, Korea and Latin America.

World manufacturing activity conditions contracted for the third-consecutive month according to the JP Morgan Global Manufacturing PMI, which fell from 49.4 in June to 49.3 in July (the lowest reading since October 2012)—readings below 50 points indicate contraction. Activity stood in contraction territory across Asia, Europe, and Latin America, while in the US it kept looming contraction. Overall, manufacturing activity conditions remain bearish for LME prices.

More details in full report.

3. US TARIFFS ALERT. US to impose an additional 10% Tariff on Chinese aluminum products, including cansheet (no impact in MW premium)

President Trump announced today that a new Section 301 Tariff of 10% will be imposed from September 1 on $300 billion of additional Chinese goods. Mr. Trump said that even though negotiations with China will continue, additional US tariffs will be imposed on Chinese goods' imports not already facing Section 301 tariffs. Tariffs would include basically all unwrought aluminum (primary/secondary), and semi-fabricated products (sheet/plate, foil, wire, and extrusions). Aluminum scrap not included. Today's announcement has no impact on the MW premium. It only impacts the all-in price of products imported from China (i.e., cansheet and foil).

More details in full report.

4. US MW APEX ACT UPDATE. APEX Act continues to gain traction in the US Senate.

Sen. Johnny Isakson (R-GA) became the third cosponsor of the APEX Act (S.1953) bill, which was introduced on June 25 by Sen. Cory Gardner (R-CO) and the bill’s original cosponsor, Sen. Tammy Baldwin (D-WI). Meanwhile, the House version of the bill is already supported by thirty-two bipartisan lawmakers (eighteen Republican and fourteen Democratic), after gaining nine bipartisan cosponsors so far in July--the most for any month since it was introduced.

More details in full report.

5. EUROPEAN BILLET UPDATE. Fight for Q4 contractual market share intensifies; spot billet premium decline continues.

Our latest market intel from the ground indicates that: a) Q4 contractual negotiations are ongoing with the latest confirmed contracts agreed to between $330 per mton and $350 per mton, mainly in Southern Europe; b) Fight for contractual market share has intensified; and c) some regional extruders seem willing to wait longer before negotiating Q4 volumes.

More details in full report.

6. LME Cash–3M contango narrows but remains supportive for premiums; longer-term spreads widen considerably.

The Cash–3M contango narrowed to $27.00 per mton from $27.75 per mton, mainly as the Cash–August contango narrowed to $9.50 from $11.00 per mton. Meanwhile, the August– October contango stands unchanged from yesterday’s $8.00 per mton, and the September– October contango widened to $5.75 from $5.50 per mton. Nevertheless, we estimate that the Cash–3M contango remains supportive for spot premiums around the world as it is wide enough for most players to profitably finance short-term cash-and-carry deals.

More details in full report.

7. China’s aluminum prices test new one-week lows amid fragile fundamental outlook.

SHFE two-month aluminum prices closed the overnight session down 0.4% at a one-week low of 13,860 yuan per mton ($1,778 per mton, excluding VAT) and extended losses in after-hours, reaching levels as low as 13,815 yuan per mton ($1,772 per mton, excluding VAT). Prices were pressured down by: a) demand growth concerns (manufacturing activity officially remained in contraction territory in July), b) reports of lower domestic alumina prices, and c) weekly buildups in primary aluminum inventories.

More details in full report.