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LME prices avoid for now further losses; Cash–3M contango tightens further (bearish premiums); US Wire rod upcharges firm up amid tightness

LME prices avoid for now further losses; Cash–3M contango tightens further (bearish premiums); US Wire rod upcharges firm up amid tightness

Executive Summary

1. LME prices hold just above $1,700 per mton as more evidence of economic weakness emerges.

LME 3M aluminum prices closed the session up 0.8% or $13 per mton at $1,718 per mton. Prices increased during the second half of the session as the US dollar softened to a one- week low. However, earlier in the session, prices fell to yesterday's low of $1,705 per mton, as economic outlook concerns continued to pressure down the industrial commodities complex. Data released today showed that US services sector activity grew in September at the slowest pace in three years, at the same time that manufacturing activity contracted the most in ten years (further ramping up expectations that the Fed will cut interest rates later this month). LME prices have practically reached our anticipated initial target of $1,680 per mton.

More details in full report.

2. LME Cash–3M contango tightens sharply as the December–January backwardation intensifies (bearish for spot premiums).

The LME Cash–3M contango sharply tightened today to a new five-month low of $13.75 per mton from yesterday’s $18.75 per mton amid a steepening December–3M backwardation (widened to $6.25 from $4.75 per mton) and a narrowing November– December contango (narrowed to $5.75 from $6.75 per mton). At today’s level, we estimate that the Cash–3M contango is no longer supportive of cash-and-carry deals for most players (bearish for spot premiums as the financing of metal becomes uneconomic).

More details in full report.

3. CME MW duty-paid financials for H2 2020 up to a ten-month high (backwardation persists).

Preliminary data indicates that CME MW duty-paid premium financials for H2 2020 increased to a ten-month high of 17.48 cent/lb, strengthening from an average of 17.17 cent/lb a week ago. Meanwhile, CME MW duty-paid premium financials for H1 2020 eased slightly to 17.54 cent/lb, down 0.05 cent/lb from yesterday but still up 0.22 cent/lb from a week ago. As a result, US MW duty-paid financials’ backwardation persists.

More details in full report.

4. MW Duty-Unpaid P1020 premium up to a nine-month high of 9.04–9.86 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at a ten-month high of 9.04–9.86 cent/lb, increasing from yesterday’s 8.88–9.64 cent/lb amid today’s sharp tightening in nearby LME contangos, which increases the financial cost of metal in transit.

More details in full report.

5. US WIRE ROD ALERT. US EC wire rod premiums increase to 14.5-18.5 c/lb on import delays.

The US EC wire rod market has tightened further as various offshore suppliers seem to be late on shipments. This development seems to be impacting not only the EC but also other wire rod niche markets (like Deox and Magnet Wire) at a time when North America’s wire rod dependency on offshore units has increased due to lower regional production than last year. As of today, HARBOR's US EC wire rod (1350) spot premium delivered for traditional suppliers has increased to 16.0-18.5 cent/lb from 15.0–18.0 cent/lb. Meanwhile, HARBOR's US EC wire rod (1350) spot premium delivered for nontraditional suppliers has increased to 14.5-16.0 cent/lb from 13.5–16.0 cent/lb.

More details in full report.

6. Chinese markets are closed for the remainder of the week due to National Day holiday; trading will resume on October 8.