Our monthly Aluminum MMI rose to 73 points in March, its highest reading in four months.
After a period a period of price stability, aluminum prices are finally showing the first signs of strength, thanks in part to a weaker dollar in February. Indeed, in our monthly outlook we already recommended subscribers to buy up in volume.
So what is suddenly causing this strength in aluminum prices?
First, before we get too bullish, let’s remember that aluminum prices are still near historical lows. This price bounce comes after significant declines in previous months and, not only aluminum, but all base metals have risen in price recently. However, some indicators within the aluminum industry are giving aluminum producers some reasons to become more optimistic.
China’s Exports and Production Down
In January, China exported 380,000 metric tons of aluminum, down 12% from the same month last year. This is good news for international markets but, to be fair, one month doesn’t tell much of a story and certainly the aluminum exports will have to continue to come down if the aluminum market wants to see a deficit this year.
In January, China produced 2.5 million mt of aluminum, down 4.5% from January 2015. This was the second consecutive month where Chinese aluminum production fell on a year-on-year basis. Aluminum producers are getting quite optimistic on the combination of lower Chinese exports and production.
Surplus or Deficit?
Although aluminum has been in a surplus for almost a decade, there is not a divided opinion on whether aluminum will continue to be in surplus this year or not. Alcoa, Inc. seems the most optimistic of all, foreseeing a record aluminum deficit this year with demand outpacing production by 1.2 mmt. Other producers are less optimistic and major brokerage houses such as Goldman Sachs even have a bearish forecast for 2016, predicting a record surplus this year.
What This Means For Metal Buyers
The trend in Chinese aluminum exports and production is a key factor to watch for the next few months. The slowdown in aluminum exports might have been driven by the steep decline in aluminum prices last year. As prices recover from January lows, we could see an uptick in Chinese exports.
Weakness in the US dollar is another key factor to watch, so is the performance of the rest of the industrial metals. Finally, China’s worsening slowdown has been ignored over the past month, however it could bring the bearish sentiment back. If the Chinese government is unsuccessful in boosting its economy and global economic activity cools off further in the coming months, industrial metals might start to lose the recent upside momentum.
Actual Aluminum Prices
- Chinese aluminum scrap finished the month at $1,602 per metric ton, up 4% from last month.
- China aluminum billet rose 5% to $1,693 per mt.
- Korea 1050 aluminum fell 2% over the past month to $2.58 per kilogram.
- The LME aluminum primary 3-month contract rose 4% to $1,585/mt