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US manufacturing falls into contraction; biggest ever Chinese-origin foundry volume arrives in the US

US manufacturing falls into contraction; biggest ever Chinese-origin foundry volume arrives in the US

Executive Summary

1. LME prices still hovering around the crucial $1,745 per mton threshold amid first US manufacturing contraction in three years; downward pressure could intensify tomorrow.

LME 3M aluminum prices closed the session at $1,753 per mton, up 0.2% or $4 per mton from yesterday. Prices fell during the first half of the session to as low as $1,736.50 per mton, initially pressured down by a strong US dollar (which reached fresh two-year highs) and concerns about a worse-than-expected contraction in Chinese manufacturing activity. Nevertheless, prices bounced back along with the rest of the base metals complex during the second half of the session as the US dollar weakened amid disappointing US manufacturing activity data. The contraction in US manufacturing activity confirms bearish conditions for LME aluminum prices.

More details in full report.

2. World manufacturing activity contracts for the fourth-consecutive month as conditions deteriorated in the US and Japan, although the pace of decline moderated.

World manufacturing activity contracted again in August but at a softer pace, according to the JP Morgan Global Manufacturing PMI, which posted its fourth-consecutive reading below the 50-point threshold (indicating contraction). Nonetheless, August’s index reading of 49.5 improved slightly from July’s reading of 49.3 (the lowest reading since October 2012). Activity conditions deteriorated sharply in the US while Europe’s contraction eased and China’s activity showed mixed signals.

More details in full report.

3. ALUMINA PRODUCTION ALERT. Expecting an oversupplied alumina market even if Alpart production is temporarily shut down.

Alpart alumina refinery in Jamaica will be closed temporarily for almost two years as a result of a revamp project that aims to increase the refinery's output capacity; HARBOR still expects metallurgical alumina production in the Western World (ROW) to expand in spite of this production curtailment at Alpart.

More details in full report.

4. US FOUNDRY ALERT. US imports largest volume ever of Chinese aluminum foundry, bearish for premiums.

As HARBOR anticipated back in April, as much as 9,400 mton of confirmed Chinese-origin foundry units (A356.2) have arrived in the US Midwest. This is by far the largest ever US foundry import volume from China. The units are to be consumed by an important wheel producer in the region. This is significant because it confirms foundry is now the first aluminum value-added export product from China that sustainably makes it to the US. We see these US imports of Chinese foundry ingots as an indirect consequence of the additional US import duties that have been imposed on Chinese aluminum wheels.

More details in full report.

5. LME Cash–3M contango widens slightly but longer-term contangos narrow to a seven- month low (now unattractive for long-term financing of units).

The Cash–3M settled today at a wider $28.50 per mton than yesterday’s $28.00 per mton. However, tightness between the December 2019 and January 2020 contracts intensified to a backwardation of $3.50 per mton from a flat spread of zero yesterday (traded at an average contango of $1.45 per mton last week), while longer-term contangos tightened to a seven-month low (unattractive for most players).

More details in full report.

6. China’s aluminum prices hold near multi-month highs.

SHFE two-month aluminum prices closed the overnight session up 0.2% at 14,325 yuan per mton ($1,766 per mton, excluding VAT) but capped intraday gains at 14,375 yuan per mton ($1,772 per mton, excluding VAT). Prices outperformed the Shanghai base metals complex supported by: a) apparent speculative buying activity, b) primary aluminum visible inventories falling by 2.6% w/w, and c) a technical rebound in LME aluminum prices late in the session.

More details in full report.