The fundamentals of the aluminum market seem to tell most of the story this month: still too much supply of the metal, and demand getting sluggish.
The monthly Aluminum MMI® clocked in at 93 in April, a drop of 1.2 percent from 94 in March. This index has been on an uneven decline since the beginning of 2013 – matching its all-time low, first reached in August 2012 – and this month’s fall comes primarily from LME and Indian aluminum prices.
Global oversupply remains an issue. Although our friends at HARBOR Aluminum report that “more primary aluminum output cuts are taking place in both China and [in the rest of the world], translating into another downgrade of our output growth forecasts for this year” and they now “expect the global primary market to be practically balanced,” as long as such things as sliding power supply agreements continue between electricity providers and aluminum smelters, as reported by MetalMiner’s Stuart Burns earlier this month, producers continue to have less incentive to draw down supply.
“As a result, the world is awash with aluminum – probably around 10 million tons of inventory in futures and off-market stocks – an oversupply that would have been closed off years ago,” writes Stuart, “if electricity prices followed the commercial electricity market rather than the long-term formulas the smelters negotiated at the time they were set up.”
The bigger macro concern is that aluminum demand is shrinking. Respective PMIs showed manufacturing activity growth in China and the US in March came below market expectations (US housing and auto markets are seeing some lulls), and along with the unemployment rate, demand contraction has worsened in Europe.
Price Drivers of the Aluminum Index
On the LME, the aluminum 3-month price closed the month at $1,910 per metric ton after dropping 5.3 percent. A 4.6 percent drop on the LME left the cash price of primary aluminum at $1,881 per metric ton. The Indian aluminum cash price fell 1.9 percent.
After dropping the previous month, the price of Chinese aluminum scrap prices rose 2.2 percent. The price of Chinese aluminum billet rose 0.3 percent after falling the previous month. The Chinese aluminum cash price prices rose 0.3 percent also.
The price of Korean 3003 coil premium over 1050 sheet held steady. Korean 5052 coil premium over 1050 sheet remained unchanged. Chinese aluminum bar did not budge the entire month. Last month was consistent for Korean 1050 aluminum sheet too.
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.