The December Aluminum MMI index fell 3% to 70 points, yet another all-time low.

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Aluminum prices fell in November, although they held much better than other base metals such as copper or nickel. Still, three-month aluminum on the London Metal Exchange hit a new low at $1,432/mt. As with the rest of the base metals complex, a strong dollar is driving prices down.


In market news:

China Is Still Overproducing

According to the latest data, Chinese aluminum output has risen 18% on the year to date despite falling demand. This has led to a 14% increase in aluminum exports this year (to date). One of the reasons China doesn’t cut production is its smelters’ ability to withstand low international prices.

Recently, China’s government announced its plans to introduce more competition into its power sector that could potentially lower electricity prices there. Given that power makes up 40% of the cost of producing aluminum, Chinese smelters’ margins would significantly improve on lower electricity prices.

Chinese smelters this year already pressured domestic power companies to reduce electricity tariffs and some smelters have managed to reduce costs by 35%. In addition, energy prices keep falling. Crude oil, a good benchmark for energy prices fell yesterday to a seven-year low.

Rio Tinto Bets On Bauxite Prospects

While major companies are delaying new mines as prices slump, in November Rio Tinto Group approved a $1.9 billion bauxite project in northeastern Australia. The company is more optimistic than most, as it expects a rebound in demand in the short term, meaning the next three years. The mine is expected to open in 2019 with an annual production of 22.8 million metric tons of bauxite, the raw material that is used to make alumina, a key ingredient in the production of aluminum.

China To Buy Up Aluminum

It is said that China will stock up its aluminum reserves by buying 900,000 mt of aluminum at current prices to reduce the oversupply that has battered markets. This seems like a bad idea, just like Beijing’s poorly thought-through intervention in the stock market last summer when it stepped in to buy shares to prop up the domestic market.

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Most likely, the actions will only produce a temporary price boost if anything. Also, it could be counterproductive as it might encourage mining companies to put off the needed production cuts, prolonging the market pain.

What This Means For Metal Buyers

Aluminum prices continue to trend lower. Current macro-drivers keep suggesting more market lows to come. China’s action to rebalance the market looks like a sign of desperation, suggesting that a sustainable price recovery is not around the corner.

Actual Aluminum Prices

  • Chinese aluminum scrap finished the month at $1,516 per metric ton, a 4.2% decline from last month.
  • European 5083 plate prices fell by 2.5% to $2,890  per metric ton.
  • Korea 1050 aluminum fell 5.88% over the past month to $2.72 per kilogram.
  • The LME aluminum primary 3-month contract fell 1.86% to finish the month at $1,515/mt

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