Aluminum MMI Falls as LME Prices at Whim of Trade Uncertainty

The January Aluminum Monthly Metals Index (MMI) fell 3.4% this month, coming in at a value of 85. The index fell 3 points from December’s reading and has returned to a low not seen since February 2017 when the index hit a value of 84.

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So far in January, LME aluminum prices have increased. LME aluminum prices fell below the $1,970/mt level, which has acted as support for most of 2018.

Source: MetalMiner analysis of Fastmarkets

LME aluminum prices seem to have found a new support at $1,795/mt. Prices have rebounded from that level and seem to have gained some momentum. The politics of trade and financial uncertainty in China, rather than supply and demand in the aluminum market have moved LME price levels in 2018.

Chinese Aluminum Scrap

The Chinese environment ministry announced restrictions of imports of scrap steel and aluminum starting July 1 of this year. Scrap steel and aluminum will be moved from an unrestricted import list of solid waste products used as raw materials, to a restricted import list.
SHFE aluminum prices also increased this month, following LME aluminum price dynamics. SHFE aluminum prices however, remain a short-term downtrend since August 2018.

Source: MetalMiner analysis of Fastmarkets

China’s Chalco (Aluminum Corporation of China Ltd.), the largest state-owned aluminum producer in the country, announced at the end of December that it would cut output as a result of falling aluminum prices. In 2017, China’s Chalco shut 470,000 tons of aluminum capacity, or 12% of their 3.93 million tons of primary aluminum capacity.
Production cuts come as a result of falling aluminum prices, ample supply in the country and weaker local demand. Chalco did not cut aluminum production due to environmental concerns, as their smelters remain outside the 28 northern Chinese cities that face special restrictions during the heating season. 

U.S. Domestic Aluminum

The current U.S. aluminum Midwest Premium has also traded sideways in January. The current price stands at $0.18/lb, the third straight month at that level. Despite the sideways trend for the premium, the current premium remains high.

Source: MetalMiner data from MetalMiner IndX(™)

Canada and the U.S. discussed tariffs on Canadian steel and aluminum this week. However, it does not seem that sanctions will be lifted for now. While the sanctions remain in place, domestic aluminum prices remain supported.

What This Means for Industrial Buyers

Despite the recent price increases, LME aluminum prices appear weaker. Tariffs, sanctions and supply concerns may act as a support to aluminum prices, both for LME aluminum and the U.S. Midwest Premium. However, the current base metals complex appears to have lost momentum. Therefore, adapting the “right” buying strategy becomes crucial to reduce risks. Only the MetalMiner Monthly Outlook reports provide a continuously updated snapshot of the market from which buying organizations can determine when and how much of the underlying metal to buy.
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Actual Aluminum Prices and Trends

LME aluminum prices fell this month, with a closing price in December of $1,849/mt. Meanwhile, Korean commercial grade 1050 sheet fell by 3.8% to $3.28/kilogram. Chinese aluminum primary cash prices fell by 2.5%, while Chinese aluminum bar prices fell by 2.4%. Chinese aluminum billet prices rose 2.2% this month, to $2,087/mt. The Indian primary cash price decreased by 6.6% to $1.85/kilogram.

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