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LME prices need to rally tomorrow to avoid next leg down; Why forcing back the MW duty-paid premium in Canada and Mexico can cost market share and profits

Executive Summary

1. LME PRICE ALERT. Prices fell today and tested the crucial $1,770 per mton threshold. Outlook to worsen further if prices fail to bounce back tomorrow, potentially opening the door for $1,550 per mton.

LME 3M aluminum prices closed the session down 0.7% at $1,782 per mton, a one-week low and the second-lowest session close since January 2017. Prices tested intraday levels as low as $1,777.85 per mton, declining along with most of the industrial commodities complex due to the ongoing intensification of trade tensions between China and the US. The odds of a break below $1,770 per mton would increase further if prices fail to bounce back above $1,798 per mton tomorrow, as new multi-year lows would be established from both weekly and monthly technical standpoints (which could encourage fresh selling by systematic funds).

More details in full report.

2. NORTH AMERICA PRICING ANALYSIS. Why selling in Canada and Mexico on a duty-paid premium basis would price suppliers out of the market.

The market conditions have changed. Attempts to charge a MW duty-paid premium on any new spot or contract business for 2020 in Canada and/or Mexico would price any supplier out of the market and thus ultimately cost them structural market share and profitability.

More details in full report.

3. LME Cash–3M contango narrows below $25 per mton as nearby tightness increases a bit.

The LME Cash–3M contango tightened further to $24.50 per mton from $28.75 per mton, as nearby contangos narrowed all the way through August: the Cash–June contango tightened to $6.00 from $8.00 per mton, the June–July contango tightened to $7.50 from $9.00 per mton, and the July–August contango tightened to $9.75 from $10.50 per mton. As a result, the Cash–3M contango is wide enough only for the most competitive players to profitably finance short-term cash-and-carry deals.

More details in full report.

4. MW Duty-Unpaid P1020 premium practically unchanged at 8.69–9.24 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at 8.69–9.24 cent/lb, increasing from yesterday’s 8.58–9.13 cent/lb amid tightening nearby contangos increasing the financial cost of metal in transit.

More details in full report.

5. China’s aluminum prices at one-week lows amid demand growth concerns and weaker cost support.

SHFE two-month aluminum prices sustained yesterday’s losses and closed the overnight session down 0.5% at a one-week low of 14,155 yuan per mton ($1,814 per mton, excluding VAT), as technical selling emerged ahead of tonight’s release of Chinese manufacturing data for May (expected to fall back into contraction mode) and amid weaker support from domestic alumina prices (which reportedly fell for the second- consecutive session after practically uninterrupted daily hikes in May).

More details in full report.