Aluminum MMI: The Calm Before the Storm

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The Aluminum MMI dropped four points this month, falling to 95. The drop came on the back of lower LME aluminum prices for November. Aluminum prices decreased by 5.6% during this month.

MetalMiner expected this retracement because aluminum prices rallied since August, and broke our own resistance levels (upper price ceiling). When prices pull back, buying organizations can buy on the dips. Despite November’s price declines, the early days of December show price increases.

Source: MetalMiner analysis of FastMarkets

SHFE aluminum spot prices also decreased in November. The SHFE tends to follow LME trends. We could see the SHFE spot prices increase at any time.

Source: MetalMiner analysis of FastMarkets

Both LME and SHFE prices have traded sideways since the rally back in August, holding above the $1,970/mt level. Trading volumes still signal upward momentum, so buying organizations need to consider their longer-term buying strategies.

Macro-economics also support aluminum prices. November saw a higher CRB index (which we will cover in depth in an article tomorrow), driven by skyrocketing oil prices as well as other raw materials such as iron ore and alumina. Aluminum faces significant raw material price pressure. Generally, increasing raw material and gasoline prices result in aluminum price increases.

Gasoline prices. Source: MetalMiner analysis of Stockcharts.

MetalMiner previously reported that the Commerce Department announced a new self-initiated antidumping and countervailing duty investigation on imports of Chinese common aluminum alloy sheet at the end of November. The estimated dumping margin is in the range of 56.54% to 59.72% for Chinese imports.

Low-Carbon-Footprint Aluminum

Low-carbon aluminum is becoming more popular among carmakers. Low-carbon aluminum differs from traditional alloys by the way it is produced — using hydropower instead of high-emission fossil fuels. Low-carbon aluminum can cut emissions by half by changing the way aluminum is produced (averaging around eight tons of carbon dioxide in Europe and the U.S.). But producing and buying low-carbon aluminum is not free. Aluminum smelters will charge “green premiums” for the newest trend in aluminum. Will buying organizations be paying this new premium?

Aluminum Scrap

Another trend aluminum smelters have deployed involves using aluminum scrap instead of raw materials. Recycled aluminum requires only 5% of the energy used for the complete process. Recycled aluminum includes up to 75% of aluminum scrap, but cannot be used in every industry. The auto industry, for example, requires higher-quality aluminum.

Source: MetalMiner data from MetalMiner IndX(™)

Chinese aluminum scrap prices increased and appear in a long-term uptrend since 2016. However, the latest drop in LME and SHFE aluminum prices also results in a drop in aluminum scrap prices. Chinese scrap prices decreased this month by 9.5%.

What This Means for Industrial Buyers

Despite aluminum prices dropping this month, aluminum remains bullish. Therefore, adapting the “right” buying strategy becomes crucial to reduce risks by knowing when to buy. Oil and gasoline prices have breached their sideways trend and have supported aluminum prices.

Actual Aluminum Prices and Trends

LME Aluminum prices have decreased this month by 5.63%, with a closing price in November of $2,044/mt. All forms of aluminum generally decreased. Korean Commercial 1050 sheet increased by 5.3%. Chinese aluminum primary cash dropped by 11% and Chinese aluminum billet by 10.3%, while China aluminum bar increased by 0.3%. India primary cash decreased by 5.1% to $2.05/kilogram.

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