Non-ferrous Metals

Although other base metals made new lows in January, aluminum prices held steady. The aluminum MMI fell only one point to 71.

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What didn’t fare well in January was Alcoa‘s stock price, which fell sharply to its lowest level since March 2009.

Alcoa stock plunges in 2016 hitting a 7-year low

Alcoa stock plunges in 2016, hitting a seven-year low. Source: MetalMiner analysis of

Lower aluminum prices were the main cause driving the company’s shares down over the past months. In addition, the recent turmoil in stock markets is not helping matters. A combination of both caused Alcoa’s stock price to plunge in January.

Midwest Premiums

Rising domestic premiums have helped Alcoa improve its margins. Since September, premiums in the U.S. rose from the lows of $0.06 per lb., mainly because of the production cutbacks announced by domestic producers in Q4 2015. However, we haven’t seen falling stockpiles and we’ll probably not see a major bounce-back in premiums. Indeed, over the past couple of months, MW premiums have stabilized at around $0.09 per pound.


There are a few factors preventing premiums from rising much more. First, some of the proposed cutbacks have been partially rolled back. Alcoa previously announced the closure of its Intalco smelter in Q1, but now the company will keep running until the end of Q2. Century Aluminum is running its Mount Holly smelter at half capacity despite its previous announcement of a complete shutdown.

In addition, domestic aluminum producers will find it hard to succeed in increasing their premiums while global sentiment remains negative. Despite the relative scarcity of material created by domestic producers, there is still a glut of material elsewhere in global markets. Finally, any significant increase in domestic premiums would attract more imports into the country, especially coming from China.


The main problem with the aluminum industry is that smelters in China keep running and refuse to cut production. The other problem is high inventories. Even though official London Metal Exchange inventories have been trending lower since mid-2013, unofficial stocks have actually increased. According to CRU, global aluminum inventory including unofficial stocks stands at around 15 million metric tons.

Moreover, China wants to keep stockpiling instead of cutting production. In January, top aluminum smelters in China agreed to form a joint venture to stockpile aluminum. These measures will only keep Chinese smelters producing more aluminum while material only goes into financial deals. However, the market knows what China is up to, and investors won’t buy aluminum until shutdowns happen. The stockpiling game will only keep prices low for longer, potentially making the problem even worse once that aluminum enters the supply chain.

Compare Prices With The January 2016 MMI Report

For as long as China doesn’t change its approach, the best that aluminum producers can hope is for prices to stay at current levels.

Actual Aluminum Prices

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Our Aluminum MM index rose 3% to 72 during the month of December from 70 in November.

Free Sample Report: Our January Metal Buying Outlook

Is this upward move something to be worried about? Or excited about? We don’t think so.


As soon as prices rise a tick, people try to find the fundamental reason for that price increase. Sometimes they can even, somehow, make the case that the outlook is set to improve. But in the case of aluminum, nothing really improved in December.

First, aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.

Supply and Demand

Fundamentally, we didn’t see anything this month to make us more bullish on aluminum. The State Reserves Bureau in China announced intentions to buy a 1 million tons, or possibly twice as much, to help smelters awash in the metal. Some might take this as bullish news, but we doubt that can make the outlook any brighter. To us, this purchase would only represent a change in ownership of existing unsold stock, irrelevant to the future global market balance.

There is no shortage of metal and aluminum continues to flood out of China. December marks another month without significant production cuts. There have been reports that Chinese smelters plan to reduce some of the excess capacity but it seems like markets would like to see some real action on this front. In China, the most smelters have done involves taking smaller capacity offline for “maintenance.”

The slight increase in aluminum prices was mostly because of a weaker dollar in December which also helped most industrial metals hold their value during the month. China’s slowdown is the long-term price driver and we recently saw Chinese manufacturing numbers disappoint, adding more worries about overall weak demand. That alone, will likely keep a lid on aluminum prices.

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MetalMiner welcomes commentary from Heidi Brock, president and CEO of the Aluminum Association.

Like many industries in the global commodities sector, 2015 has been a bit of a roller-coaster for the North American aluminum industry. From highs, such as the release of the aluminum-intensive Ford F-150, to lows like the announced curtailment of some domestic production, this has unquestionably been a year of ups and downs.

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However, some recent chatter and reporting suggesting a “collapse” of the US aluminum business, framing ours as an industry “fighting for its life,” are overblown, misjudged and simply incorrect.

It’s time to take a deep breath, tone down the rhetoric and look at the hard facts.

Aluminum is still a crucial, easily recyclable, material? Source: Adobe Stock/Pavel Losevsky

Aluminum still a crucial, easily recyclable, material. Source: Adobe Stock/Pavel Losevsky

The Facts

It is absolutely true that this is an extremely challenging time for parts of the domestic and global aluminum industry — particularly in the upstream segment of the business. The recently announced curtailments of US smelting capacity have real-world consequences on hardworking families and rural communities. Read more

In honor of Throwback Tuesday, we are revisiting MetalMiner’s Top 50 posts with an eye toward illuminating what’s happening in metals today. #TBT This post, originally published Feb. 26, 2009, about the production of primary aluminum, is as relevant to the LME’s new aluminum contracts as it was to explaining aluminum’s price drop at the time.

Since the aluminum price on the LME dropped below $1500/ton, it has been repeatedly stated that some 60-70% of aluminum smelters are losing money.

What goes into producing aluminum? Source: Adobe Stock/Pavel Losevsky

What goes into producing aluminum? Source: Adobe Stock/Pavel Losevsky.

Electricity alone is generally accepted as representing about a third of the cost of aluminum ingot, although at what sales price that metric is judged is open to debate. We thought it would be interesting to explore what the true costs of production are for a ton of primary aluminum and thereby test to what extent the smelters’ claims that they are losing money are correct.

Free Download: Historical Metal Price Reports, Where Prices Have Been (And Where They’re Going)

As with the steel industry, many of the industry’s woes may have as much to do with low plant capacity utilization as they do with low sales prices.

How Much Does it Cost to Produce One Ton of Aluminum?

Although the newest smelters can be closer to 12,500 kWh per ton, let’s say most smelters are consuming electricity at 14,500-15,000 kWh/ton of ingot produced. With the LME at $1,300/metric ton, that means electricity should be costing a typical smelter $0.029/kWh.

Needless to say, smelters are rather coy about their power cost contracts so it’s hard to verify how prevalent this number is though many smelters are on variable power cost contracts with their electricity suppliers such that the power generators are paid a fixed percentage of the world ingot price. If we take that as one-third, then it’s not only smelters that are losing money – many power generators must be, too.

When US national average industrial and commercial electricity consumers are paying $0.0706/kWh and $0.1013/kWh, respectively, according to the Energy Information Administration, to be selling power to smelters at $0.029/kWh represents a huge subsidy. In reality, power costs to the smaller US smelters are probably higher than this and explains why many have been cut back or idled, but interestingly the same source gives specific power costs for the Pacific Northwest of only two-thirds the national average, suggesting that many NW smelters may indeed still be getting power at ingot-price-related levels.

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The monthly Aluminum MMI® registered a value of 76 in October, a decrease of 1.3% from 77 in September.

Free Sample Report: Our Monthly Metal Buying Outlook

Aluminum prices were more stable in September, only falling slightly from the previous month. This price stabilization is normal after 4 consecutive months of declines. Upside momentum is still lacking and it seems like the bears are firmly in control of this market. The aluminum trend keeps pointing down with no sign of a turnaround.

Aluminum_Chart_October-2015_FNLChina is Still Overproducing

The Aluminum Association expressed strong concern when the China Non-Ferrous Metal Industry Association (CNIA) called for the removal of a longstanding 15% tax on exported primary aluminum. This would increase the margins of Chinese exporters, potentially exporting more aluminum to international markets. Even with the tax in place, some in the US believe that aluminum producers in China are illegally mislabeling extruded products as semi-finished to avoid exports on billet.

Aluminum exports are up 22% on the year-to-date. Exports dropped over the past 2 months but production still looks high in China, so the drop in exports likely relates more to weaker global demand. Some analysts are waiting for a rebound in exports when final reports from last month come out.

Another interesting highlight of September was that Alcoa, Inc. will split itself into 2 companies. The firm has found that its legacy smelting business, the company’s vertically integrated structure, is not the advantage it once was.

One half retains the Alcoa name and comprises the legacy business of bauxite mining, alumina production and primary aluminum smelting. The second half of the business, or the “value add” business, is yet to be named, although it’s believed to include much of Alcoa’s specialty aluminum business and recent acquisitions such as titanium fabricator RTI.

Free Download: Compare With Last Month’s MMI Report

Two months ago we mentioned the slide in Alcoa shares. Even though the company made good acquisitions and investment in downstream value-added activities, its stock couldn’t buck the falling trend in aluminum prices. On top of that, premiums fell in September below $0.07/lb for the first time since January 2012, hurting the margins of Alcoa and the rest of the US aluminum producers.

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Everybody loves to hate a big bank. And everybody loves to hate a bank that ‘manipulates metals markets.’ The ridiculously slow aluminum load-out schemes, inflated Midwest premium prices (even in a world awash with the light metal) and the “speculation” that has become a regular part of the industrial buyers’ daily routine have all created discontent among the masses.

Whether the Goldman-Sachs and JPMorgans of the world have done anything illegal, we can’t say – after all, the Federal Reserve said it “is reviewing a 2003 regulatory decision that allowed Wall Street investment banks to enter into the commodities business.” Perhaps that’s a follow-on to the dismantling of the Glass-Steagall Act.

Has this one regulatory decision caused commodity volatility? That’s for another post, though certainly it has likely caused some of the volatility. (China demand, the market herd effect, supply shortages and interest rates likely play a much larger role than this one regulatory decision.) So when the Commodity Futures Trading Commission (CFTC) decided to send letters ordering the key players to retain emails, documents, etc., an investigation may come in the near future.

“Okay, so what?” you say…

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Despite the current sluggishness in the non-ferrous metals markets, India’s Aditya Birla Group has some pretty big plans for the aluminum and copper sectors. To begin with, the Group’s flagship company, Hindalco, also India’s largest non-ferrous metals producer, has made some headway by raising funds for its biggest greenfield project so far. The Aditya Alumina and Aluminum project in the Indian State of Odisha, seeks to raise approximately US $1.65 billion to compete with other majors in this field, particularly Vedanta.

While Hindalco, a Fortune 500 company, goes about its expansion plans, its subsidiary, Novelis, a global leader in aluminum rolled products and aluminum cans recycling, has also announced massive investments plans worth US $ 1 billion to mark its presence in growth markets such as Korea, China, Brazil and India.

Novelis also announced that it had completed the sale of three European aluminum foil and packaging plants to Eurofoil, a unit of American Industrial Acquisition Corporation (AIAC). The transaction includes foil rolling operations in Rugles, France; Dudelange, Luxembourg and Berlin in Germany, which will now operate, respectively, as Eurofoil France S.A.S., Eurofoil Luxembourg S.A., and Eurofoil Paper Coating GmbH. Read more

For all metals that comprise the MetalMiner Copper MMI®, Chinese bright copper scrap had the largest decline on June 28, 2012, dropping 4.1 percent. However, some semi-finished products showed price support. For example, the price of Chinese copper wire rose 0.4 after a two-day drop. The price of Chinese copper bar increased 0.4 percent. The cash price of Chinese copper increased 0.4 percent.

The price of US copper producer grade 122 inched up 0.8 percent. The price of US copper producer grade 110 rose 0.8 percent. The price of US copper producer grade 102 rose 0.7 percent . The cash price of primary Japanese copper saw little movement.

Following a couple days of improvement, the copper 3-month price weakened by 0.1 percent on the LME. Prices closed at $7,335 per metric ton. The primary copper cash price remained essentially flat on the LME at $7,353 per metric ton.

The week’s biggest mover on the weekly Automotive MMI® was US palladium bar, which saw a 6.9 percent decline to $571.00 per ounce. For the third week in a row, the price of US platinum bar dropped, falling 4.1 percent to $1,392 per ounce.

The price of US HDG fell 2.2 percent over the past week as well. This was the third week in a row of declining prices despite a still-growing aluminum sector when compared to last year.

The copper 3-month price fell 2.9 percent on the LME to $7,335 per metric ton after rising 1.9 percent the week before. Following a 2.3 percent increase in the week prior, the primary copper cash price fell 2.8 percent on the LME last week to $7,353 per metric ton. The Chinese lead price closed down last week with a 2.5 percent drop. Korean 5052 coil premium over 1050 sheet remained essentially flat from the previous week.

Note: The MetalMiner monthly MMI series will be first released on July 2, via MetalMiner IndX and subsequently over the course of the week of July 2.

The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends. For more information on the Automotive MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

Have you every wondered what those practicing the dark arts of arbitrage are up to? It’s an often-used phrase but not many of us have actually bumped into someone who owns up to be an arbitrager. In plain terms an arbitrager seeks to take advantage of disparities between two markets that historically have shown a close correlation. So for example New York Comex copper and London LME copper prices would normally move in close correlation. If they get out of sync arbitragers will sell one and buy the other in the expectation they will return to equivalence. Well markets like New York and London copper move so closely that the margins remain thin. Playing such differences as appear in such a highly liquid market provide limited opportunities so these clever chaps have long since moved onto more lucrative arenas. The objective remains the same but seeing the differences as they develop and being able to match them to a historical norm takes a little more insight.

MetalMiner has developed a pretty clever index based on hundreds of price points around the world, updated daily and reporting metals prices impacting a wide spectrum of industries. Curiosity got the better of me this morning and playing with LME base metals prices during the month of June I ran a correlation with Chinese domestic base metals prices over the same period fully expecting a close correlation within fractions of a percent. Surprisingly this was not the case. While base metals everywhere have come off in the month of June they have come off more on the LME than they have in China. For example aluminum fell 4.26% in RMB from June 1 to June 27 but the LME fell 8.05% during the same period. Zinc fell 3.30% in China compared to 5.79% on the LME, whereas tin fell 3.24% compared to 5.93%. The largest disparity involved lead, which fell only 3.14% in China but 8.20% on the LME.

Aah you say, maybe exchange rates are to blame? Good point, I thought of that too, but converting RMB prices to USD at the rate prevailing on the day of reporting shows aluminum prices in dollar terms dropped 4.17% rather than the 4.26% above, a miniscule difference.

Grounds here for arbitrage wizards to track the correlation and exploit divergences? Probably, maybe they are already at it, but more to the point access to such data allows metals consumers in the US to track the raw material costs of their Chinese suppliers (and the IndX doesn’t only track Chinese prices of course) and either take avoiding action if local price trends start moving against them or advantage if price trends move in their favor. Knowledge is power the saying goes. Well hasn’t that always been the case in the metals markets?