aluminum price

Weak demand, a flood of Chinese exports and robust Western supply, in spite of earlier smelter closures, have created a perfect storm of surplus in the aluminum market.

Aluminum_Chart_July-2015_FNL

Shares of Alcoa Inc. stock have been collapsing over the past few months, falling more than 20% in only 8 weeks.

Alcoa's Slide

The aluminum giant, with earnings ahead on Wednesday, has experienced powerful earnings growth over the past four quarters; however, lower aluminum prices are weighing on its stock price.

[caption id="attachment_71232" align="aligncenter" width="500"]Alcoa Inc (AA) Stock Price 2 years out Alcoa, Inc. (AA) Stock Price 2 years out. Chart: MetalMiner.[/caption]

It should come as no surprise that the monthly Aluminum MMI® registered a value of 83 in July, a decrease of 3.5% from 86 in June.

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World aluminum production in May is up almost 12% year-on-year. That is the fastest growth rate since 2011.

LME Price Falling

Aluminum on the London Metal Exchange is back again below $1,700 per metric ton. This level acted as a floor in March 2014 and Alcoa investors are wondering if aluminum prices will rebound again this time, which would give a boost to Alcoa's shares.

Unfortunately aluminum prices might need to fall further in order to cause further non-Chinese closures to balance the market. Furthermore, the Chinese stock market is having a rough go of it. The Shanghai index is off over 30% from highs reached in June. Finally, the fact that commodity prices keep falling across the board makes a rebound in aluminum prices more unlikely. Aluminum buyers and Alcoa investors might want to think twice before betting on a rebound in prices...

The Aluminum MMI® collects and weights 12 global aluminum price points to provide a unique view into aluminum price trends over a 30-day period. For more information on the Aluminum MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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Through half of 2015, US auto sales are on track to hit record levels not seen in 15 years. After climbing more than 4% through July annual sales could approach the previous annual record of 17.4 million if they stay on this pace.

Yet, none of that demand seems to be helping automotive metal prices.

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As robust as the US automotive market is, it can't entirely make up for sluggish sales elsewhere that are depressing demand for metals such as steel, aluminum and copper and pushing our index further down. Even the exhaust system metals, platinum and palladium, saw a deep dive this month.

Chinese New Car Sales Barely Growing

New car sales grew just 1.2% in China this May. Further complicating matters, is the fact that the nation of 1.37 billion is starting to develop a used car market and it's looking very much like Chinese consumers like paying less for a used car, rather than paying more for a new one. What a shock?

This is, of course, bad news for raw materials suppliers as the massive Chinese auto market only recently transitioned to automobiles being the main form of transportation. Less-metals intensive bicycles and motorbikes had filled that role until recently.

Chinese steel and aluminum manufacturers had been counting on more robust growth from the domestic new car market and a strong used market could stunt the advances many were planning to reap from new car sales.

Bearish Market Hits Home

The monthly Automotive MMI® registered a value of 82 in July, a decrease of 3.5% from 85 in June.

Automotive_Chart_July-2015_FNL

As we have documented liberally, the strong US dollar has created a bearish environment for all metals and automotive inputs are no exception. The steep fall observed this month in palladium, a metal that had previously held our automotive index up, was an example of just how much the bearish market is affecting even metals with strong demand. Palladium hit a two-year low this month and the bottom, subsequently, fell out of an already listing price index.

Copper, zinc and lead also fell significantly.

What This Means for Automotive Metal Buyers

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The drama surrounding Greece's debt is compounding the bear market and, while it hasn't yet caused strong currencies such as the dollar to see significant gains, its potential to do so threatens all commodities.
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The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI® constituent metals and their exact price movements, log in or register below!

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Our construction metals index fell slightly this month despite strong US housing demand and generally good employment numbers.

The monthly Construction MMI® registered a value of 74 in July, a decrease of 1.3% from 75 in June.

Construction_Chart_July_2015_FNL

The drop was mainly driven by hefty price hits to Chinese rebar and H-beam steel – yet the dip was spared from going lower by a more than 10% spike in the US shredded scrap price.

The construction sector neither lost nor gained jobs in June, according to the Bureau of Labor Statistics, and the Commerce Department said permits to build new homes surged 12% in April to an annual rate of 1.275 million, the highest since August 2007. Permits for apartment construction were the breakout leader, while permits for single-family homes, a much broader segment, still rose modestly.

Homebuilders Bullish

Confidence among US homebuilders, as measured by the National Association of Home Builders’ index, rose to its highest level in 9 months in June, so all signs point to a strong building season domestically.

Meanwhile, the developing world isn't exactly holding its part of the construction spending deal up. A recent World Bank report detailed how China's state-run banking sector is creating debt while not delivering on the construction stimulus promises Beijing has made. With Brazil still mired in recession and Russian construction limited to heavy pipeline work, the BRICS countries are not developing at the rates they earlier envisioned.

Oil & Gas Demand Up

Demand for oil and gas products such as steel tubes has rebounded domestically as the US passed Russia this month as the world's top natural gas producer. Baker Hughes reported that the rig count for US oil producers increased for the first time this year, despite massive output by Saudi Arabia and other OPEC countries trying to undercut US producers' prices. It was the first weekly increase in 30 weeks.

Actual Construction Material Prices

Construction purchasing remains on the cusp of what could be a breakout, but both lending and a shortage of skilled labor remain major concerns.

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The price of Chinese rebar fell 7.4% to $341.39 per metric ton. At $368.77 per metric ton, Chinese H-beam steel was down 6.9% for the month. Weekly US Midwest bar fuel surcharge prices fell 4.6% to $0.30 per mile after rising the previous month. After rising the previous month, weekly US Gulf Coast bar fuel surcharge prices dropped 4.3% to $0.30 per mile. A 3.8% drop over the past month left Chinese aluminum bar at $2,134 per metric ton. Weekly US Rocky Mountain bar fuel surcharge prices fell 3.6% to $0.31 per mile after rising the previous month. After rising the previous month, European 1050 aluminum prices dropped 0.4% to $2,907 per metric ton.

The price of US shredded scrap rose 10.2% over the past month to $280.00 per short ton.

Last month was consistent for the Chinese low price of 62% Australian iron ore fines, which did not move from $77.30 per dry metric ton.

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The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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MetalMiner's basket of industrial metals used by the auto industry, the monthly Automotive MMI®, registered a value of 85 in June, a decrease of 2.3% from 87 in May.

Automotive_Chart_June-2015_FNLAs the chart shows, this move basically undoes May's gains and puts the automotive metals index back where it was in April. The loss nearly erased the 2.4% gain last month as palladium and platinum prices either fell or traded sideways and the other metals tracked in the index weren't really responsible for the recent movement, anyway.

Robust Car/Truck/SUV Sales

While automotive sales remain strong in the US and abroad, those sales are not creating the necessary demand for automotive materials to move the needle this year – even as companies such as Alcoa, Novelis, ArcelorMittal and others invest heavily in automotive aluminum and steel facilities worldwide.

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US car buyers bought new cars and trucks at the fastest pace in nearly a decade in May, US auto sales data released by the automakers showed. General Motors, Fiat Chrysler and Honda reported increases. Toyota, Nissan and Ford saw declines.

Americans bought about 1.63 million new vehicles in May, up 1.6% from about 1.61 million in the same month last year, according to automotive statistics provider Motor Intelligence. Industry forecasts had expected a 1% decline in sales, to 1.59 million, in part because May was one sales-day shorter than it was last year.

May’s seasonally adjusted annualized rate came in at 17.8 million, well past analysts expected 17.3 million.

Steel Inventories Still High

The big drag on the index continues to be the price of steel, which reached another new low this month. Cheap imports and high inventories are to blame in that market, and those high inventories will continue to make the road just as hard to ride for automotive.

Domestic steel producers have filed anti-dumping and countervailing duty petitions against five countries related to corrosion-resistant steel, the type used in automotive applications.

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The petitions charge that unfairly traded imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan are causing material injury to the domestic steel industry. The petitions further charge that significant subsidies have been provided to the foreign producers by the governments of those countries.

It will take months to know if this action produces significant relief of the cheap imports and, even then, the anti-dumping and CVD determinations might not be high enough to have an effect. The end-use automotive market and its much of its material supply chain is intrinsically tied to the steel market.

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We here at MetalMiner have very cautiously been pointing out the underlying strength of the US construction market and have been dutifully chalking up falling and flat Construction MMI® numbers to low oil prices and cautious banks for nearly a year now.

Construction_Chart_June_2015_FNL

The monthly Construction MMI® registered a value of 75 in June, an increase of 1.4% from 74 in May, not gangbusters construction activity by any stretch of the imagination but perhaps the beginning of a break in the down-to-flat trend the market has been mired in since last year.

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There are several good reasons to believe this is a turning point in the price of construction materials such as H-beams, steel rebar and shredded scrap. Reasons that go far beyond our belief that a bad weather, higher break-even points for energy projects and a lack of willingness from lenders are what has held them back thus far.

First, in April construction spending jumped 2.2% to an annual rate of $1 trillion, the highest level since November 2008, the Commerce Department said on Monday. The percentage increase was the largest since May 2012. March’s outlays were revised to show a 0.5% increase instead of the previously reported 0.6% fall. Economists polled by Reuters had forecast construction spending rising 0.7% in April.

Oil as Fuel and as Project Breaker

With spending on construction up and beating expectations, it's reasonable to expect prices to follow, but that's not the only indicator of a strong summer building season. My colleague, Stuart Burns, wrote this week that, at least in the US, oil prices are actually going up and inventories are falling.

"For the first time in six months," Burns wrote, "the US oil market is flirting with backwardation, where the spot price is higher than one- or three-month dated delivery – a sign of a tightening market and, potentially, a shortage."

According to another report, prompt-month July contract for West Texas Intermediate (WTI) crude was 27 cents lower than second-month August this week. That was the narrowest spread since Dec. 19 and compares to a month ago when it was at a $1.50 discount. While prices at the pump are still reasonable, the

Beyond that, the oil and gas industry has come out of this mini-slump leaner and meaner. A Goldman Sachs report said that US oil production will grow by 155,000 barrels per day in the fourth quarter of 2015 compared with the same period in 2014 as cheap money and more efficient drilling technology allows tight oil producers to continue drilling in spite of OPEC’s best efforts to close them down.

According to the American Petroleum Institute, investments in updating US energy infrastructure alone could generate an estimated $1.14 trillion in capital investments by 2025.

Construction Materials

The cost of construction materials, overall, is poised for an increase. This includes wood and other non-metal construction inputs.

According to the 2015 Q2 Non-Residential Construction Index (NRCI) Report recently released by FMI Corporation, the construction industry is improving despite lukewarm economic conditions. FMI surveys executives at construction companies for their forecasts and, according to the responses, the index component for the cost of construction materials dropped one point to 21.4. The component drops as prices increase. The cost of labor components dropped sharply by 5.2 points to 12.5. Both labor and material cost increases reduced the overall NRCI score. Despite this, the overall score STILL gained, jumping to 64.9 for the quarter.

That score reflects 18 months of improving activity.

"It was a little bit surprising, I would expect them (construction materials) to go up faster," said Phil Warner, research consultant at FMI. "One of my explanations (for the first half of the year) has been substitution. Copper and other materials, where they can be replaced, have been substituted. We are at a point now where prices are so low that I would expect substitution to end and construction-grade materials (metals) to go up faster. We certainly don't expect them to go down as construction will continue rising. Materials are coming around. They will remain at a lower-cost as construction, overall, improves but we likely won't see them falling further."

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Aluminum has had quite a depressing month.

A flood of Chinese exports, weak demand and robust Western supply in spite of earlier smelter closures have all contrived to leave the market in primary surplus. As such, MetalMiner's monthly Aluminum MMI®, tracking aluminum prices across the globe, registered a value of 86 in June, a decrease of 4.4% from 90 in May.

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China’s aluminum output rose to a record 2.59 million tons in April, according to the National Bureau of Statistics. The world simply can’t rely on China to restrain output. Prices might need to fall further in order to cause further non-China closures to balance the market. Rusal cited the rising tide of Chinese aluminum exports as a main concern in the producer's first-quarter earnings report, which could increase in light of China removing a 15% export tax on aluminum products.

In the absence of demand from the financial sector, both the LME/CME price and physical delivery premiums have been falling, particularly in Asia.

Aluminum Premiums for Physical Delivery: Takin' a Dive!

As I wrote on the blog recently, Reuters reported this week that premiums have dropped to $100-110 per metric ton for in-warehouse Singapore metal, down from $150 two weeks ago and $400 in December. In South Korea, May tenders were said to be awarded at $135-145 per metric ton and the country is sitting on nearly half a million tons of primary metal inventory. Premiums have dropped in Europe and North America, too, but are said to be stabilizing for the time being, although most are expecting further falls in North America.

Interestingly, the LME has returned to a healthy forward price curve, as it did in times of plenty from 2009-2014 when the stock and finance trade flourished, soaking up excess supply.

With such a strong forward curve and low interest rates, all it needs is a little appetite from the hedge funds and banks, with some encouragement from warehouse companies to store metal, and bingo! Excess inventory rapidly gets sucked up into long-term storage.

According to Reuters, some warehouse companies are starting to offer incentives or discounts on storage costs of around $70 to draw in metal. The foundations are in place for a pick-up in stock and finance activity, and the possibility that “demand” created by that activity could support premiums at least at or around current levels and potentially, at least in Asia, raise them up.

Most are expecting LME prices to fall further; it is entirely possible LME prices could fall while physical delivery premiums could rise. That was exactly the situation we had in 2012-13 and the LME changed its rules to avoid it. The next six months could test the system, let’s see.

What It Means for Semi-Finished Aluminum Markets

The combination of lower LME prices and falling physical delivery premiums have allowed producers of semi-finished products to chase a weak market down, a process hastened by rising supply from China.

Semi-finished product makers' conversion premiums have also been soft in the face of a well-stocked distribution market and slack end-user demand, a situation that, as we enter the summer period, is unlikely to turn around before the fourth quarter.

Exact Aluminum Price Movements Over the Month

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Seems that somebody forgot to tell the automotive metals that the bear market was still going on this month. Strong aluminum and high-strength steel demand, and end-user purchases, have again made auto the standout in a field of mostly down markets.

After flattening in April, the monthly automotive MMI® registered a value of 87 in May, an increase of 2.4% from 85 in April. A big factor was the performance of aluminum coil on the index, as its index broke resistance and soared as well.

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China removed export taxes on aluminum, opening more markets up to the automotive-grade sheet and coil prices that automakers in the West have been experimenting with for a decade now. Prices of palladium, lead and even copper also notched strong LME growth filling strong demand from domestic and foreign automakers.

Consumer Sales Rising

In the US market, April new car sales rose by 5% from a year ago, to more than 1.463 million units as predicted in a J.D. Power and LMC Automotive's mid-month auto sales forecast update. April's totals are anticipated to be the highest since April 2005.

SUVs and smaller "crossover utility vehicles" were the main leaders in the sales surge. While not all US automakers posted strong Q1 results, profits were generally up even if they were up lower than some analysts expected. General Motors' results were better than in the same period a year ago, when costs associated with safety recalls limited quarterly profit to $125 million.

Fiat Chrysler Automobiles reported a profit of $101.2 million (€92 million) d​uring the first quarter compared with a loss of $173 million (€190 million) during the same period last year.

What This Means for Automotive Buyers

Consumer demand for automobiles traditionally picks up in the summer months, so this could be the beginning of a big turnaround for our Automotive MMI®. Fundamentals continue to look strong as the index had better supply and demand numbers than other metals even when it was losing price ground. Stay tuned.

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Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.

Why Manufacturers Need to Ditch Purchase Price Variance

Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April's value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.

Energy Loans Called In

In fact, banks in the US are cutting credit lines to energy companies and forcing the firms to cough up more collateral to guard against fallout from the fall in oil prices.

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The US International Trade Commission upheld tariffs against both rebar and, more recently, oil country tubular goods (OCTG) from China, but the flood of imports has already done its damage when it comes to both traditional construction and the steel pipes used for oil and gas drilling. Supply is high and demand is simply not high enough to push prices upward.

It's a testament to the resilience of the US construction market that our MMI was even able to hold steady this month. For complete prices, read the complete story – log in or sign up for MetalMiner membership!

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MetalMiner's aluminum price index, the monthly Aluminum MMI®, registered a value of 90 in May, a significant increase of 2.3% from 88 in April.

Aluminum on the London Metal Exchange is back above $1,900 per metric ton, breaking short-term resistance to hit a four-month high.

China Ends Export Taxes

China erasing aluminum export taxes didn't seem to weigh down on prices; however, aluminum premiums took a beating when the news of China’s removal of export taxes came.

As my colleague Stuart Burns wrote in a recent article, the tax removal should reduce the domestic surplus of metal, supporting domestic prices and depressing prices in overseas markets. With current primary production counting for about 75% of total primary capacity, Chinese producers will have the ability to increase production without creating any shortages in China's domestic market.

Even outside China, production has been ramping up over the past six months. UC Rusal and Alcoa, Inc. have responded by closing older and less-efficient capacity, but even so, both they and other primary producers are investing in new capacity at the same time. Demand for aluminum remains robust, but the excess of supply is something that is clearly bugging aluminum producers.

Certainly, the supply outlook doesn't explain the recent price increase. However, the recent weakness in the dollar does. The dollar index is experiencing some turbulence for the first time in more than 9 months and that supported aluminum and most industrial metal prices in April.

Battery Research Continues

In other aluminum news this month we also had Stanford University  building an aluminum-ion battery prototype that offers various improvements over lithium-ion batteries. These aluminum-ion batteries will potentially make consumer electronics safer, charge faster and allow thinner or even flexible-form factors.

Get all of this month's exact prices in the full article.

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Several news articles this week have led with comments made by UC Rusal executives regarding the price of aluminum. The FT led with Rusal battles with LME on aluminum price and Reuters added Rusal plays down concerns of Chinese aluminum flooding market.

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All of which says to me, Rusal is worried sick that a combination of falling physical delivery premiums and rising Chinese product exports are going to depress aluminum prices this year and into the medium term. The fact is, there is no shortage of aluminum and, although demand continues to grow robustly, supply is growing faster.

Primary Producers Opening New Capacity

Mills such as Rusal’s and Alcoa, Inc.‘s have manfully responded by closing older, less-efficient, higher-cost capacity but even so both they, and other primary producers, are investing in new capacity at the same time. Production outside of China has been creeping higher over the last five months.

Reuters’ Andy Home tells us it’s creeping up to the tune of an annualized 650,000 metric tons. Part of this is older European plants being purchased and restarted by smaller players. Part is new capacity such as Alcoa’s Ma’aden joint venture plant in Saudi Arabia. Likewise, while Rusal has closed older, higher-cost plants it is now talking about a ramp up of it’s 600,000-mt per year Boguchansk plant in Siberia, although, admittedly, only the first 150,000 mt phase for next year.

Semi-Finished, Completely Sold and Shipped

Meanwhile, China exported 1.07 million mt of mostly semi-finished products in the first quarter of this year, representing a year-on-year increase of 353,000 mt. Although December’s almost 500,000 mt was an outlier, the removal of a 13% export tax on May 1st and the consideration of further tariff reductions signals that Beijing has no intention of reining in this overcapacity, but rather is setting course to support domestic producers as domestic demand slows.

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