Aluminum MMI® Falls 3.6% To A New 6-Year Low

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The monthly Aluminum MMI® registered a value of 80 in August, a decrease of 3.6% from 83 in July.

Aluminum_Chart_August-2015

The combined impact of stronger output and weaker demand from China are adding to the global aluminum surplus. Chinese exports remain strong (up 35% year-on-year in the first half of the year) and the recent Chinese stock market sell-off has only raised worries about a bigger-than-expected economic slowdown and the latest figures seem to agree with the market.

Purchasing Down Again

China’s July flash Purchasing Managers’ Index came in at 48.2. China’s PMI has been below 50 for five consecutive months. Figures below 50 are generally associated with a fall in manufacturing activity.

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Mix all this information together, add a strong dollar and a falling commodity market and there you have it: Aluminum prices hit a fresh six-year low.

With aluminum now nearing $1,600/mt, prices are close to or below the cost of production for a big portion of global capacity. This is hurting the profitability of aluminum producers and investors are well aware of that.

Producers Predicting Surpluses

Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast. The aluminum giant managed to offset declines in aluminum prices through its growth in its aerospace, automotive and alumina businesses. However, that hasn’t changed the minds of investors who have contributed to Alcoa’s shares dropping 40% year to date.

What This Means For Aluminum Purchasers

These price declines not only hurt producers, but also the profitability of buying organizations that believe prices can’t go lower and proceed to buy big volumes to meet future demand. It’s never too late to have a strategy – don’t be caught on the wrong side of the trend.

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