aluminum price

A massive stockpile of 500,000 metric tons of aluminum has been trucked out of the Mexican city of San José Iturbide and shipped to a remote port in Vietnam, according to shipping records and people familiar with the matter.

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The Wall Street Journal reports that the stockpile is believed to be related to or entirely the product of Chinese aluminum producer China Zhongwang. As a result of moving the massive stockpile, Vietnam has become a major importer of aluminum extrusions this year.

Preliminary Steel Exports Down

Based on preliminary Census Bureau data, the American Iron and Steel Institute reported that the U.S. imported a total of 2,682,000 net tons of steel in October, including 2,225,000 nt of finished steel (down 3.4% and up 4.7%, respectively, vs. September final data).

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On the year-to-date (YTD), through 10 months of 2016, total and finished steel imports are 27,486,000 and 22,017,000 nt, down 19% and 19.8%, respectively, vs. the same period in 2015. Annualized total and finished steel imports in 2016 would be 33.0 and 26.4 million nt, down 15% and 16.1%, respectively, vs. 2015. Finished steel import market share was an estimated 26% in October and is estimated at 25% on the year.

Just a few days after hitting a 15-month high, the aluminum rally cooled down as prices inched lower over the past few days.

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So, where are aluminum prices heading? Is it now a good time to hedge/buy forward? The short answers are: up and yes. But let’s explains this view a bit further.

A Bull Case

3M LME aluminum prices trending higher this year

3-Month LME aluminum prices trending higher this year. Source: MetalMiner analysis of Fastmarkets.com data.

Concerns about rising supply in China kept a lid on prices for most of this year. However, market dynamics have changed somewhat over the last few months. China’s aluminum supply has been in check, with data showing a slight decline in the country’s aluminum exports this year.

What’s Coal Got to Do With it?

Helping keep supply in check is the recent spike in coal prices as coal is used in alumina refining. Thermal coal prices in China have more than doubled this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. In addition, alumina, which is then processed to produce raw aluminum, has risen steeply in price over the last couple of months. Read more

In October, Alcoa, Inc. divided the company into two separate entities. The split created a commodity-focused company which retains Alcoa’s name and its upstream business. The second entity, called Arconic, now operates as the company’s downstream business.

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When the split was announced last year, Arconic was supposed to drive value for shareholders once listed as a separate entity while Alcoa’s stock price was expected to remain depressed since, at the time the split was announced, aluminum prices were trading near their 2009 lows.

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of stockcharts.com data

Alcoa shares have risen near 50% since the company split. Source: MetalMiner analysis of @stockcharts.com data.

Guess what happened? Read more

October was a big test for base metals. A month in which a rising dollar would normally bring metal prices down. But, it didn’t.

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This development just proved that bulls are still in control. This bull market, one that we called earlier this year, looks healthy enough to extend into 2017.

Industrial metals etf hits new highs despite a strong dollar. Source: MetalMiner analysis of stockcharts.com data

The industrial metals ETF hits new highs despite a strong dollar. Source: MetalMiner analysis of @stockcharts.com data.

Strong Demand

China makes up nearly half of the world’s demand for industrial metals. Chinese demand from infrastructure and construction projects has been robust this year and the release of new manufacturing PMI data confirmed that strong demand. The Caixin manufacturing PMI for October rose to 51.2, the highest reading since July 2014 and betting market expectations.

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The automotive industry is also looking strong. In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year. Read more

Many active investors in the aluminim market will have watched, perplexed and confused, as to why the London Metal Exchange price continues to rise, yet the fundamental reality is one of, if not an oversupplied market, at least one with no shortage of metal in storage.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Producers will claim some credit for cutting capacity and talking up demand, which — to be fair — both positions hold some water. Western smelters in the U.S. and Europe have been relentless in cutting uneconomic refining in the face of weak prices.

Aluminum Smelter Closures

Source: CRU

This graph from CRU shows the steady demise of the U.S. primary aluminum smelting industry and you only have to Google “closure of aluminum smelters” or something similar and you will get a litany of stories about smelters being closed or facing imminent closure around the world.

Production Overseas

At the same time, though, production in the Middle East has jumped from 0.9 million metric tons (mmt) in 1999 to an expected 5.7 mmt this year, and Chinese primary production has skyrocketed from 2.6 mmt in 1999 to reach 31.2 mmt in 2015, with more to be added in 2016. Read more

Our Aluminum MMI jumped to 83 points after London Metal Exchange aluminum prices hit a 15-month high. Not even a strong dollar could ruin aluminum bulls’ party last month.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Aluminum rose above $1,700 per metric ton for the first time in over a year. Aluminum supply has increased this year as rising aluminum prices triggered the release of new capacity and restarts of idled capacity. However, other drivers have pushed prices into new ground:

Rising Costs

Energy accounts for around half of the cost for Chinese smelters to produce aluminum. Therefore, there is a close correlation between aluminum and energy prices.

Thermal coal prices in China have more than doubled this year. The price spike has been spurred by domestic mining cuts in China, with electricity generators and steelmakers making up for the shortfall via imports. Aluminum_Chart_November_2016_FNL

As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. In addition, alumina prices in China, another key ingredient for the making of aluminum, have increased around 50% so far this year.

Strong Demand

Aluminum output is running higher this year but so has demand for the metal. Chinese demand from infrastructure and construction has been robust this year. The automotive sector, another big industry for aluminum demand, continues to look strong.

In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year.

Investors Are Buying Metals

Industrial metals entered a bull market earlier this year and aluminum is finally playing catch up. Our historical analysis shows that a metal has far greater upside potential when the overall commodities market is in bullish mode while its chances of going down increase in a falling commodities market.

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When commodities are on the rise, aluminum investors tend to overreact on bullish news while dismissing bearish news. That’s what we are seeing right now.

What This Means For Metal Buyers

Industrial metals have been in bullish mode since early this year. Aluminum prices are finally jumping on the bandwagon. Aluminum buyers should minimize their price risk exposure if they haven’t done it yet.

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Aluminum lines on a conveyor belt in a factory.

Aluminum lines on a conveyor belt in a factory.

Aluminum prices are on the rise in a major way with a stockpile in the Chinese market leading the charge along with concern over an available supply shortage.

According to a recent report from The Wall Street Journal, aluminum futures hit a two-year high to close out October on the Shanghai Futures Exchange. The specific cause? Some analysts claim it’s the stricter Chinese road regulations with new weight limitations on trucks, which are delaying aluminum deliveries.

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Producers who rely mostly on trucks for aluminum delivery could see their costs rise as much as 30% for the time being.

“The longer this situation is unresolved, the more impact it’s going to have,” Michael Turek, head of base metals at BGC Partners in New York, told the WSJ. “Less aluminum is getting to where it needs to go.”

Smelters using trains as their primary method of moving aluminum are also facing issues, according to the WSJ.

“Loads of ingots are waiting at rail stations across the region, waiting for spare rail capacity to take them to markets in the south east and elsewhere,” aluminum consultancy AZ China wrote in a report Tuesday.

Aluminum Prices Hit 15-month High to Begin November

Our own Raul de Frutos wrote this week that aluminum prices hit even newer highs, rising above $1,700 per metric ton on the London Metals Exchange.

“Aluminum supply has increased this year as rising aluminum prices triggered release of new capacity and restarts of idled capacity. However, as we recently pointed out, there are other factors pushing aluminum prices up,” he wrote.

Those factors include rising energy costs and strong demand.

How will aluminum and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

 

3M LME aluminum price hits 15 month high. Source: fastmarkets.com

Three-month LME aluminum price hits 15 month high. Source: Fastmarkets.com.

Aluminum prices hit new highs this week, rising above $1,700 per metric ton on the London Metal Exchange. Aluminum supply has increased this year as rising aluminum prices triggered release of new capacity and restarts of idled capacity. However, as we recently pointed out, there are other factors pushing aluminum prices up:

Rising Costs

It takes a lot of energy to smelt aluminum. Indeed, energy accounts for around half of the cost for Chinese smelters to produce aluminum.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Thermal coal prices in China have more than doubled this year. As energy prices increase, Chinese smelters are getting squeezed, making it tougher for them to keep up with production. Alumina prices in China have also entered the upward track from mid-August, increasing around 50% so far this year.

Strong Demand

Chinese demand from infrastructure and construction has been robust this year. The auto sector, another big industry for aluminum demand, continues to look strong. In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year.

What This Means For Metal Buyers

Industrial metals have been in bullish mode since early this year. Aluminum prices are finally jumping on the bandwagon. Aluminum buyers should minimize their price risk exposure if they haven’t done it yet.

LME week is upon us and one of the stories coming out of London is how reforms to end long lines have distorted the metal’s supply picture. A new European metals trading platform has been launched.

Aluminum’s Fundamental Picture

Reforms to the London Metal Exchange‘s global warehouse network have, as planned, cut the amount of metal trapped in storage, but the unintended consequence is a distorted fundamental picture and more pressure on already tumbling volumes.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Since 2013, the LME has implemented measures aimed at reducing queues for aluminum as it leaves warehouses after banks and traders that own them profited from letting long queues build up while charging rent.

New German Metals Trading Platform

A new trading platform for buying and selling of base metals for immediate physical delivery was launched in October by German company Metalprodex GmbH, with the most initial trading liquidity in aluminum and lead, the company’s head said.

Free Download: The October 2016 MMI Report

Newly established Metalprodex is offering an electronic trading platform enabling delivery of physical metal within two days.

Reuters reports 1.8 million metric tons of previously mothballed Chinese aluminum production capacity has now been restarted this year following a massive slump last year as prices plummeted.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

While another 2.5 mmt of new capacity, much of it ultra-low-cost, is also expected to be added by the end of the year, a process of both restarts and greenfield additions that is expected to continue into the year end. Factor in new supply from Bahrain and India, and global supply is outstripping real demand.

Distortions in the Market

The aluminum market may be distorted more than most, but copper is not far behind and steel is plagued by overcapacity running into the hundreds of millions of metric tons.

Zinc has had a strong run this year with prices rising on the back of strong (construction-supported) galvanized steel demand and a constrained supply view. But 2017 will see the return of Glencore’s 500,000 mt/year operation, previously mothballed due to low prices, significantly increasing supply.

Even the nickel market, although said to be in deficit because of Indonesia’s absence from the market and cut backs in the Philippines, has seen prices rise on the back of rising (Chinese) stainless production.

How Far Can This Stimulus Go?

Prices and production are both supported and supporting each other on the basis of strong demand and production in China across a range of metals. How much longer has China’s housing market got to run?

Free Download: The October 2016 MMI Report

How much more debt is Beijing willing to acquiesce to being added in support of maintaining an adherence to a dogmatic GDP growth target? Take your guess, but 2017 could see an easing in support and many of these markets might lose the support they have enjoyed this year. That doesn’t mean a crash, but it will mean a cap to further price increases and the possibility of prices falling back for those commodities most vulnerable to speculative support and oversupply.