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World manufacturing contraction intensifies; MW financials for H2 2019 weaken further after proposed Section 301 Tariff of 25% is postponed

Executive Summary

1. LME prices close below $1,800 per mton amid world manufacturing contraction; prices unlikely to bottom out until end-user demand cycle turns around.

LME 3M aluminum prices closed the session down 0.3% or $5 per mton at $1,794 per mton. Early in the session, aluminum prices had rallied to an intraday high of $1,811 per mton, as trade tensions eased and oil prices rallied. However, price momentum shifted downward after the release of downbeat manufacturing activity data across China, the rest of Asia, Europe, and the US. Additionally, the US dollar surged to a one-week high as US manufacturing growth still outperformed most of the developed world. Aluminum prices are unlikely to establish a cyclical bottom if manufacturing activity continues to worsen.

More details in full report.

2. World manufacturing activity contracted in June at the sharpest pace since late 2012 (as HARBOR antcipated over a year ago).

World manufacturing activity experienced a steeper contraction in June, according to the JP Morgan Global Manufacturing PMI, which fell from 49.8 in May to an 80-month low of 49.4 in June (readings below 50 points indicate contraction). Conditions deteriorated across the board, with the Eurozone, China, and Japan, all posting sharper declines, while the US grew at a 32-month-low rate. Current global manufacturing activity conditions are bearish for LME prices.

More details in full report.

3. China’s aluminum prices fall and confirm a new downward price target; medium-term momentum deteriorating.

SHFE two-month aluminum prices closed the overnight session down 0.4% at a new three-month low of 13,780 yuan per mton ($1,781 per mton, excluding VAT), extending losses in after-hours trading until testing levels as low as 13,630 yuan per mton ($1,762 per mton, excluding VAT). Prices faced downward pressure from declining domestic alumina prices and weaker-than-expected manufacturing activity data for June, which more than offset optimism from the de-escalation of trade tensions achieved over the weekend. SHFE prices officially unleashed a new technical downward price target of 13,500 yuan per mton ($1,745 per mton, excluding VAT) after posting another bearish close today and confirming a breach of the 200-day moving average threshold.

More details in full report.

4. US TARIFFS UPDATE. Proposed Section 301 Tariff of 25% on aluminum products from China to be postponed for now.

President Trump confirmed in a press conference on Saturday, after meeting with China’s President Xi Jinping, that there was an agreement to hold off on placing additional US tariffs on Chinese goods. Thus, for the time being, potential additional tariff of 25% on US imports of various types of aluminum products from China will not go into effect. We understand that for as long as trade talks continue to achieve progress, the US will withhold from further imposing/hiking tariffs on imports of Chinese goods. Previous US tariffs (Section 301, Section 232, and AD/CVD) remain in place.

More details in full report.

5. CME MW duty-paid financials for H2 2019 down to 18.13 cent/lb.

Preliminary data indicates that CME MW duty-paid premium financials for H2 2019 weakened today to 18.13 cent/lb, down 0.10 cent/lb from Friday (when the most recent volume was transacted for this period) amid a preliminary transacted volume equivalent to 11,875 mton. As a result of today’s activity, US MW duty-paid financials’ backwardation widened.

More details in full report.

6. MW Duty-Unpaid P1020 premium down to 8.73–9.29 cent/lb.

HARBOR’s MW Duty-Unpaid Premium (MWP DUP) was assessed today at 8.73–9.29 cent/lb, weakening from Friday’s 8.82–9.38 cent/lb amid today’s widening in nearby contangos reducing the financial cost of metal in transit.

More details in full report.

7. LME Cash–3M contango widens as conditions ease ahead of July, but concentrated holdings of inventories continue.

The LME Cash–3M contango widened to $23.50 per mton from $20.25 per mton on Friday, mainly supported by a significant easing in the Cash–July contango to $4.50 from $2.50 per mton; while the July–August contango narrowed to $10.25 from $10.50 per mton, and the August–September contango held without a change at $7.50 per mton. However, concentrated holdings of inventories could create nearby tightness as monthly prompt dates loom near.

More details in full report.