Crude Oil the Key to Future Aluminum Price Drops, Though Metal’s Value Still Holds Better Than Others

by on

MetalMiner’s monthly aluminum price index, the Aluminum MMI®, fell to 87 in March, a decrease of 2.2% from 89 in February. Aluminum price drops nearly across the board accounted for the latest hit – namely the LME aluminum 3-month price, which fell to its lowest point since April 2014.

Aluminum_Chart_March-2015_FNL

However, even this aluminum fall is minimal compared to the losses of our other metals.

LME Aluminum Warehouse Rules, Premiums

The London Metal Exchange (LME) keeps moving forward with reform of its warehouse rules. As my colleague Stuart recently explained in a post, a definition of what load-out means has been accepted. Now metal cannot be merry-go-rounded within the same facility and by the same owner.

On aluminum delivery premiums, Stuart asks, “could we be seeing the end of the elevated physical delivery premium?” He goes on to answer his question:

Not in the short term; the Western world is too tight for the premium to revert to pre-crisis levels, but we could be seeing the beginning of the end. Given increased supply from China and outflows from the currently moribund stock and finance trade, supply to Western consumers could increase over time – ironically just as products become more widely available to manage the risk.

The long-awaited aluminum premium contract will be launched on October 26. We will have to wait to see how this impacts delivery premiums.

Free Download: Lock in Overseas Shipping Costs for Bauxite, Alumina

On the production side, non-Chinese aluminum production was unchanged in January, according to the latest figures from the International Aluminum Institute (IAI). Producers are still holding aluminum capacity in terms of keeping smelters offline in the face of low prices and historical stock overhang.

The IAI was also in the news early last month because it stopped production of its monthly producer inventory figures, saying its own members are either not submitting the data at all or struggling to do so on a timely basis.

Let’s Dance: IAI Data and LME Aluminum 3-Month Price

How that affects the aluminum price is an entirely different issue. The 3-month aluminum price on the LME fell last month, but aluminum is still above the lows of 2014 and definitely performing better than most base metals. It’s just one move out of many that have made aluminum the murkiest and most difficult to read of the metal markets we track with the Monthly MMI series. The IAI certainly can’t be faulted for not passing along what we all have known for some time is incomplete data. It should fall on producers to be more forthcoming and provide greater transparency.

We believe that the direction aluminum takes from now will strongly depend on crude oil. Has oil found a floor? It’s hard to tell yet, but if hasn’t, another move to the downside will likely have a depressing effect on the rest of commodities and aluminum would likely suffer as well.

For more strategic price thresholds to follow and the right actions to be taken on aluminum, please take a look at our forecasting reports.

Exact Month-to-Month Aluminum Price Changes

Korean 1050 aluminum sheet prices fell 11.7% to $3.44 per kilogram after rising the previous month. After rising the previous month, Korean 3003 coil premium over 1050 sheet prices dropped 6.4% to $3.50 per kilogram. Korean 5052 coil premium over 1050 sheet prices fell 6.2% to $3.64 per kilogram after rising the previous month.

Last month, Chinese aluminum billet prices dropped by 2.6% to $2,055 per metric ton. The primary aluminum cash price ended the month on the LME at $1,794 per metric ton, down from $1,794. With a 2.2% decline on the LME, the aluminum 3-month price closed the month at $1,806 per metric ton. At $1.85 per kilogram, the cash price of primary Indian aluminum was down 1.3%. European 5083 plate prices decreased by 1.1% this month, ending at $3,198 per metric ton. The value of European 1050 aluminum weakened by 0.4% this month, settling at $2,908 per metric ton.

After dropping the previous month, the price of Chinese aluminum bar prices rose 7.3% to $2,179 per metric ton. The price of Chinese aluminum scrap rose 2.5% to $1,997 per metric ton after falling the previous month. After dropping the previous month, the Chinese aluminum cash price prices rose 1.2% to $2,053 per metric ton.

{Comments Off on Crude Oil the Key to Future Aluminum Price Drops, Though Metal’s Value Still Holds Better Than Others Comments Off on Crude Oil the Key to Future Aluminum Price Drops, Though Metal’s Value Still Holds Better Than Others}