aluminum price

So far this year, on LME aluminum trading, inventory levels have directly correlated with price direction. Aluminum demand has outstripped supply causing falling inventory levels, and many assume prices are due to rise, except they’re not.

According to a Reuters report, LME inventories fell steadily this year with total inventory down by 479,000 metric tons in the first four months of 2022. Aluminum prices have been on a bear run since the beginning of March, coming down from a high of $3839/ton to $2577/ton. These numbers sit below the start-of-the-year level around $2813/ton. The WBMS reports that the aluminum market swung into a surplus for the January to April 2022 period of 400k tons.

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Lower Aluminum Supply with Deceptive Pricing

The headline on-warrant exchange stocks does not point to a fall in inventory. Instead, it indicates a switch from expensive on-warrant LME warehouse storage to less expensive off warrant. This is also called shadow stock. The trend points broadly downwards across both on-warrant and shadow stocks. Only a short term up blip in April for shadow stocks (which retracted back down in May) occurred.

Aluminum

Rolled aluminum products. Adobe Stock, 2022

Why didn’t the marketing respond with higher prices? If inventory continues to fall that must mean demand outstrips supply. Metals prices would go up not down.

Over the last 10-15 years the LME price failed to reflect the true market price. Not only to judge the cost to consumers but the reality of market demand. The physical delivery premium remains the measure to use.

Aluminum Premiums Rise and High-Energy Prices Induce Stress

To no surprise, the LME introduced a suite of financially settled delivery premium hedging products back in 2019. This acknowledgement indicated that only part of the story consists of traditional metals contracts.

Today aluminum physical delivery premiums sit on a near record highs of $600 per tonne over LME cash in the European market and $750 in the U.S. Midwest, effectively removing any incentive to deliver onto the market. Such eye watering premiums sit available for physical delivery. The physical delivery premiums show why exchange inventories continue to fall.

Aluminum

Aluminum scrap, Adobe Stock 2022

Aluminum and zinc smelters are closing across Europe due to record high energy prices. As a result, there’s little prospect of physical delivery premiums falling. Exchange inventories may fall further, metal prices could ease further. However, delivery premiums emerge as the only metric giving a true picture of the tightness of the market.

Does your company have an aluminum buying strategy based on current aluminum price trends? Look into MetalMiner Insights for in-depth aluminum price indexing. 

China COVID Lockdowns Ending May Effect Demand

The prevailing narrative shows demand is slowing and output is rising. The focus is on China gradually reopening after two months of COVID-19 lockdowns. However, there’s uncertainty if the Chinese economy will fully recover. SHFE price at a premium to the LME. Such exports only remain possible by the strength of the physical delivery premiums.

Continued high physical delivery premiums stands out as the likely trend. High power costs will likely sit here through 2023. If Chinese exports pick up further those delivery premiums could be at risk of a downside due to increased Chinese supply. Volumes are not sufficient enough to dent the localized metal scarcity in Europe or the USA. Demand will eventually hit recessionary forces which will reduce consumption. This will eventually lead to a softening of  sky high physical delivery premiums. This will finally bringing metal prices, delivery premiums and inventory levels into some semblance and normality.

The Construction MMI dropped by 9.41% from May into June. The decline comes amid growing optimism about the state of the industry. Even so, talk of recession continues to cast a shadow over the post-COVID economy.

Construction Metal

U.S. Construction Market Expected to Grow 3% by 2026

Despite the doom and gloom recession talk going on, industry insiders remain confident that the U.S Construction Market can trend up. In a report published by GlobeData, the $1.9 trillion industry can expect to see another 3% growth between 2023 and 2026. The organization cited new investments in renewable energy, housing, and transport to support its claims. They also clarified that the bulk of the growth comes from the residential sector, where demand remains at a boiling point.

Despite this optimistic outlook, GlobeData made it clear that output will likely remain low through 2022. They mentioned this stems from “subdued investor confidence amid a steep rise in construction costs.” While it’s true there is a light at the end of the tunnel, it’s too early to tell where the end lies.

To that point, some data suggests that housing supply and demand will soon take a back seat to cost…

The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.

U.S. Housing Market Sees Drop in Building Permits, Rise in Commercial Projects

Reuters recently reported that building permits declined a full 3.2% back in April. Meanwhile, new home sales dropped 16.6%. Industry experts claim that soaring mortgage rates and increased costs are essentially cutting first-time buyers out of the market.

Considering that inflation upended so many industries, it’s hardly surprising that Americans are cooling on home ownership. The median home price surged 19.6% in the last year. This puts the average cost of buying a house at a whopping $450,600. It’s not exactly what you’d call “starter home” pricing, and it’s not likely to change anytime soon.

But while residential construction may be cooling off, U.S. commercial construction outlooks are  expected to soar. In fact, according to a Dodge Data and Analytics Report, a massive backlog of pre-pandemic projects waiting to break ground remains. Despite rising material prices and ongoing supply chain problems, commercial building continues looking up.

However, DD&A did qualify their prediction with a few stipulations. For instance, the company measures its start data in dollars, not the number of projects. This leaves the analysis open to misinterpretation amid rising inflation.

Still, DD&A remains adamant that the industry is “in the green.” In fact, if it weren’t for supply chain problems, they claim that we’d have a much more dramatic recovery.

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Construction MMI: China Looks to Outpace a Lackluster 2021

When it comes to the industry’s impact on the global Construction MMI, many experts look to China for answers. There’s no denying that China remains the biggest construction market in the world, worth well over $1 trillion in the U.S. However, the industry has been plagued by COVID-related issues for going on almost three years now.

A recent report published in Business Wire confirmed what a lot of people expected. First, the Chinese construction industry grew by only 2.1% in 2021, the lowest number since 2007. Fortunately, projections for 2022 are more optimistic. In fact, despite ongoing lockdowns and supply chain problems, the industry expects to expand by 4.5% by year’s end.

This is largely due to major government investments in “fixed-asset projects” in energy and transportation. Helping the report is the fact that several major projects broke ground at the end of last year. Among them are the $7.2 billion Wuhan Chow Tai Fook Financial Center and the $4.2 billion Qingdao Shenyuanhai Offshore Wind Farm.

U.K. Housing Demand Strong Amid Record Inflation

Construction economists at Arcadis recently revised their price forecasts to include inflation of up to 10%, a dramatic increase from the previous assessment of 5%-6%. The organization defended its new figures by citing how Russia’s war in Ukraine affected energy and material availability.

They went on to say that, “projects with a greater exposure to the steel market, including the logistics sector and some infrastructure sectors”, could see even higher inflation – up to 12% or 13%!

Despite all this, The Guardian cited demand for new homes surging all across the U.K. In fact, two of Britain’s biggest house builders, Crest Nicholson and Bellway, reported strong sales throughout Q1. So far, the trend has continued into Q2. Bellway expects to complete more than 11,100 homes before July despite supply bottlenecks. On top of that, the company reports that increased sale prices largely neutralized inflationary costs.

2021, Adobe Stock

In the U.S., there are indications that the housing market may start to cool off a bit. With the average cost of living soaring around the world, builders may run out of buyers. For now, the industry continues riding the wave. Still, they’re watching closely for signs of lessening momentum.

If you’re responsible for generating metal cost savings, you need to make sure you’re following these five best practices.

Construction MMI: Actual Metal Prices & Trends

  • Chinese steel rebar prices dropped 3.6% month over month, starting June off at $739 per metric ton.
  • European commercial 1050 sheet aluminum also dropped, declining 3.82% to $4,302 per metric ton.
  • H-beam steel from China registered a 4.57% decline to $720. The country’s aluminum bar prices declined 6% to just $3,112 per metric ton and continue to drop.
  • S. scrap steel fell a surprising 5.91% to just $525 a short ton.

Aluminum prices declined overall in May. However, near the end of the month, they appeared to hit bottom and began to trade sideways. Conflicting macroeconomic and geopolitical factors continue to pressure markets, resulting in unclear direction and price trends.
Overall, the Aluminum Monthly Metals Index (MMI) dropped by 6.21% month over month. 

Shanghai Lockdowns Return, Compounding Uncertainty

Shanghai’s reopening proved short-lived as the city stumbled back into lockdown this week. Following a surge in COVID cases, restrictions and mass testing are returning to most areas of the city. Shanghai first went into strict lockdown in late March to quell a major outbreak. Currently, officials intend to release areas that test negative from lockdown. Those that test positive will remain quarantined.

China remains unwavering in its COVID-zero commitment. The impact of this most recent setback remains unknown. It will likely depend on how long and how expansive the lockdowns become.

As cases rebounded almost immediately after Shanghai began reopening, the risk for subsequent lockdowns there and in other cities remains high.

China’s COVID Policies Still Squeezing Aluminum Prices

As long as Chinese demand remains muted, we can expect aluminum prices and market movements to be affected. During the initial stretch of Shanghai’s lockdown,  manufacturing activity plummeted. This caused China’s demand for aluminum to plummet too.

According to the latest numbers, imports of unwrought aluminum and aluminum products fell 11.1% from March to April. They also dropped 37.7% year over year. Meanwhile, output appeared largely unaffected. In fact, the average daily and total monthly production of primary aluminum hit record-highs in April, aided by the relaxation of power curbs.

China’s boost allowed global aluminum production to hold firm year over year during the month. It was a surprising result given the tightness brought on by the Russian invasion of Ukraine. However, as supply outpaced demand in China, bearish sentiment climbed, and global aluminum prices slumped.

With Shanghai’s restrictions returning, markets will likely begin to price delays into China’s overall recovery.

With primary LME ingot prices falling, buyers should carefully review best practice sourcing strategies!

LME Inventories Fall While WTI Crude Climbs

As Chinese demand continues to experience holdups (however temporary), falling LME warehouse inventories and soaring energy prices add competing pressure to the upside for aluminum prices.

For example, inventories saw an 18.5% month-over-month drop at the end of May. On top of that, average inventory levels during the first five months of 2022 sit 55.34% beneath where they were in 2021. Of course, stock levels do not necessarily translate to a movement in prices. That said, consistent declines on top of falling European production levels may very well add friction to any fall in aluminum prices.

Energy prices also continue to climb. Indeed, WTI crude oil prices closed May more than 71% above the year prior. During the early days of June, prices increased beyond the $120/barrel mark, and they remain unlikely to subside in the near term.

In its most recent (and punitive) round of sanctions, the EU agreed to ban as much as 90% of Russian crude oil imports by the end of 2022.

Meanwhile, according to European Commissioner Valdis Dombrovskis, China continues to purchase Russian oil at a 35% discount. India, likewise, has stopped short of cutting off Russian energy supplies.

Nonetheless, the EU’s recent decision will leave a growing number of countries vying for energy produced elsewhere. As a result, aluminum production and input costs will continue to see pressure.

CME Aluminum Futures Contract Builds Momentum

 The LME nickel contract experienced the most direct and substantial fallout from the historic March nickel crisis. However, the reputational damage to the exchange has begun to permeate through to other metals.

The average daily volume for Aluminum futures on the Chicago Mercantile Exchange hit an all-time high in May with a 138% year-over-year jump. Open interest likewise increased 158% during that same period. Meanwhile, on the LME, open interest fell over 14% from March 8 to the end of May.

Thus far, aluminum has not yet faced the same loss of liquidity as nickel. There have also been few issues with volatility or price discovery. Nonetheless, this could indicate the beginning of a gradual shift between the two exchanges as a result of the crisis.

Since March, the CME Group has increasingly looked to capture disillusioned traders from the LME. Momentum is building in aluminum futures. That’s why the exchange also launched aluminum options on May 23. Despite these efforts, the LME remains the leading global exchange for industrial metals by a wide margin.

The MetalMiner Insights platform includes global aluminum prices, premiums, forecasts, and specific monthly busying strategies. Request a 30-minute demo of the MetalMiner Insights platform now.

Actual Aluminum Prices and Trends

  • The LME three-month aluminum price fell by 6.37% month-over-month to $2,850 per metric ton as of June 1.
  • Chinese primary cash aluminum decreased by 1.09% to $3,101 per metric ton. Chinese aluminum scrap rose 4.63% to $2,338 per metric ton. Chinese aluminum billet fell by 9.38% to $2,998 per metric ton.
  • Meanwhile, European 1050 aluminum sheet dropped by 3.82% to $4,302 per metric ton.
  • Indian primary cash fell by 10.36% to $3.03 per kilogram.

 

The EU has announced an end to the temporary suspension of anti-dumping duties on rolled aluminum products into the block. The suspension was set to expire in July. The news comes hot on the heels of last week’s announcement that the UK would establish provisional duties for six months while it carries out an anti-dumping investigation into imports of aluminum extrusions from China.

The European Commission performed a similar investigation last year with regards to Chinese aluminum plate, sheet, strip, and foil products. On October 11th, they released findings stating that the dumping margin was between 14.3%-24.6%. Though the commission implemented anti-dumping measures, they suspended the ruling for nine months due to the tight market in the wake of the pandemic bounce back.

rolled aluminum

Row of rolls of aluminum lie in production shop of plant.

The Decision Was a Long Time Coming

Come March, the EC consulted with the involved parties to decide whether it was necessary to continue to extend the suspension period. They concluded there was sufficient spare capacity in the European market. On average, utilization was found to be running at about 80%. This proved more than satisfactory for the measures to be reintroduced.

That brings us to this week. As stated, the European Commission has officially announced it will re-implement anti-dumping duties after the extension expires on July 12th. During the investigation period (July 1st, 2019 – June 30th, 2020), the EU imported around 170,000 mt of products which ere involved in the case from China. For scale, this is more than the entire annual flat-rolled aluminum consumption of the UK.

The products involved included coils or coiled strips, sheets, or circular plates with a thickness of 0.2 mm – 6 mm. It also included aluminum plates with a thickness of over 6 mm, and aluminum sheets and coils with a thickness of 0.03 mm – 0.2 mm. That said, the case excludes related aluminum products used in manufacturing cans, cars, and aircraft parts. It’s likely that this is the result of effective consumer lobbying.

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Rolled Aluminum is a Big Deal to “Big China”

The decision is set against a backdrop of soaring Chinese aluminum exports. The surge stems, in part, from a lower SHFE primary price relative to the LME and increased VAT rebates for exporters. There has also been a boost in domestic aluminum production in China thanks to relaxed energy restrictions and COVID lockdowns, which has slowed consumption.

Aluminum Price Comparison

Source: MetalMiner Insights

The MetalMiner Insights platform includes a broad range of aluminum global prices, short term and long term forecasts, buying strategies and should cost metals.

It’s true that the EU’s move may not stem the flow of Chinese metal on its own. However, the original investigation found that duties set at or around the range of under-pricing (14-25%) may result in the market simply paying the cost. This might not apply to standard commercial product. However, for higher alloys, European availability remains tight despite what the EC may believe.

Some Duties do More Harm Than Good

When the UK applied 35% duties to Russian material last month, most of the market just paid it. Of course, the material in question was already in transit, and there were no ready alternatives. Still, it’s indicative of the fact that when countries impose import duties, it often fails to penalize the producer. Instead, it leaves the burden with the importer or, more likely, the consumer.

Duties can dissuade further purchases in the longer term, assuming the market is sufficiently well served with alternative supply options. But while markets remain tight, they can end up lifting the market price consumers are forced to pay from all suppliers. This even includes those suppliers not impacted by the duties. In their case, they can simply take advantage of scarcity, inflating prices to just below the anti-dumping level.

That was certainly the case under 232 in the USA. It’s likely to be the case in the EU and UK. It could very well be the case until market softens and metal becomes so readily available that suppliers have to fight for business.

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The UK Trade Remedies Authority announced on Friday, May 20, that new measures should be put in place to “protect the UK’s aluminum extrusion industry” from dumped Chinese products.” The surprise move comes after an 11-month investigation into inconsistencies with aluminum bar imports.

The TRA made the recommendation to the organization’s current Secretary of State for International Trade, Anne-Marie Trevelyan. Spurring on the investigation were some of the UK’s few remaining aluminum extruders, particularly Norsk Hydro.

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China aluminum

Grispb/Adobe Stock

The Details Behind the Decision

After some initial research, the TRA concluded that imports of Chinese aluminum extrusions were being dumped into the UK at unfair prices. After noting this had caused significant injury to the UK’s own industry, the organization determined that a formal investigation was warranted.

In the meantime, the TRA will put some provisional measures in place. For example, importers will have to provide a bank guarantee to HMRC, the UK tax authority. This will have to cover any duty ultimately applied to imports over the next six months prior to a final determination.

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The measures go into effect on May 28. And while the level of duty is unknown, the original investigation suggested some Chinese manufacturers had been underselling their products at between 7.3% and 29.1%. This is enough to expose importers to potential claims of nearly 1/3 the goods’  value.

Aluminum Bar Imports Remain Necessary

Chinese aluminum bar products currently attract the same 6% duty level as imports from other countries. This is slightly less than the 7.5% duty applied by the EU on imports into the block. Meanwhile, rumors persist among trade buyers that the rule could apply to only those bars above 3.25″ (82.55mm) diameter. If true, this would impact only those commodities on the lower end of the cost spectrum.

While the TRA’s announcement makes no such distinction, there would be some logic in such a size cut-off. This is because UK extruders’ small presses cater to this end of the size range, and there are no domestic UK producers of larger diameter bars. As a result, companies need to import all large diameter product. In this case, additional duties would be self-defeating: protecting no one but damaging a broad consumer base in oil, gas, heavy engineering, and automotive.

Interviews with both UK importers and Chinese manufacturers make it clear this has come as a surprise to many in the industry. They also indicate that the almost-immediate application of the interim measures may do more harm than good. Specifically, it will affect those companies with orders in production or on shipment. After all, they have no means of canceling or mitigating potential costs.

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From a technical perspective, global aluminum prices began to change structure in short time frames, which could suggest further price drops. Currently, prices are beginning to approach previously-established lows. However, a bullish trend reversal can’t occur until aluminum establishes a clear price floor.

Aluminum prices

Source: MetalMiner Insights

The Aluminum Monthly Metals Index (MMI) dropped by 8.84% month over month.                 

Global Aluminum Prices Mirror Copper, Fall Amid Lockdowns

As with copper prices, the impacts of China’s zero-COVID initiatives significantly dragged down aluminum prices. While each metal often moves on its own respective (and often idiosyncratic) fundamentals, the sheer weight of China’s economic issues is causing seismic shifts. As both the largest producer and consumer of commodities, China’s recent woes have had a strong impact across the sector.

For instance, LME aluminum and copper prices saw respective 13.69% and 4.96% month-over-month drops from March to April. This had a lot to do with the ongoing lockdowns in Shanghai, which caused manufacturing and consumer demand to contract significantly. According to the General Administration of Customs, aluminum imports into China saw a 4.6% year-over-year decline in March. All in all, it’s a trend many expect to continue as long as lockdowns and COVID-related restrictions persist.

With primary LME ingot prices falling, buyers should carefully review the best practice sourcing strategies!

EU Proposes Russian Oil Embargo

Meanwhile, the war in Ukraine ticked past its second month with countries around the world continuing to ramp up pressure on Russia. In fact, the European Commission recently proposed a sixth package of sanctions on Moscow. If implemented, they would stand as the toughest yet. As part of the package, Europe plans a full embargo on Russian oil by the end of 2022. Meanwhile, the US has had a ban on Russian oil, LNG, and coal imports since March.

Still, some member states of the EU remain divided about the severity and length of the sanctions. In many cases, this is due to their reliance on Russian energy supplies. After all, Russia is the world’s second-largest crude oil exporter (after Saudi Arabia), representing some 27% of all oil imports to the EU in 2021.

While negotiations remain ongoing, the European Commission appeared willing to adjust its proposal following pushback from certain member states. At present, the proposal would aid Hungary, Slovakia and Czech Republic with refinery upgrades. It would also allow a delayed embargo for those countries until 2024. A Russian oil transport ban for EU shipping services was also extended from one month to three.

Tight Energy Markets Could Raise Aluminum Prices

Aluminum prices are particularly sensitive to fluctuations in energy markets. In fact, on average, energy accounts for roughly one-third of input costs for the metal. This is why it is often referred to as “congealed electricity.” Therefore, aluminum price trends often mirror those of crude oil. Of course, both of these indices spiked dramatically following the Russian invasion of Ukraine in late February.

Prior to the war, Europe’s energy crisis had caused aluminum production across the continent to shutter. As such, the tightness left in the wake of Russian energy supplies will undoubtedly add upside pressure to aluminum prices. It’s also expected that this pressure will only worsen should the EU continue with its latest round of sanctions.

On the flip side, China’s lockdowns have temporarily muted the country’s demand for both oil and metals like aluminum. According to the General Administration of Customs, China’s crude oil imports fell 14% year over year in March. Of course, that relief is sure to end once the country recovers from the latest wave of COVID and restrictions lift.

For both oil and aluminum, the return of Chinese demand combined with the absence of Russian energy supplies from markets like the EU could help aluminum prices bottom out. How quickly those factors will be priced into the market, however, remains to be seen.

The MetalMiner Insights platform includes global aluminum prices, premiums, forecasts, and specific monthly busying strategies. Request a 30-minute demo of the MetalMiner Insights platform now.

Actual Metals Prices And Trends

  • As of May 1, the LME three-month aluminum price fell by 13.69% month-over-month to $3,044 per metric ton.
  • Chinese primary cash aluminum decreased by 12% to $3,135 per metric ton. Meanwhile, aluminum scrap declined by 12.12% to $2,235 per metric ton. Finally, Chinese aluminum billet fell by 7.85% to $3,308 per metric ton.
  • Simultaneously, European 1050 aluminum sheet dropped by 13.64% to $4,473 per metric ton.
  • Indian primary cash rose by 9.87% to $3.38 per kilogram.

 

Following a strongly inflationary metal environment in Q1, Q2 2022 is looking like a whole different ballgame. Indeed, it’s no secret that the global economy is currently facing a number of major challenges. Alone, none of these would be enough to derail us from last year’s strong rebound. When added together, however, they’re helping to shape a far-from-rosy outlook for the 2022 metals forecast.

The “Winds” of Change?

A recent Capital Economics note to clients phrases it particularly well, stating that “all three of the world’s major economic blocs are now facing significant headwinds.” In the US, the storm stems from an increasingly-hawkish Federal Reserve. Meanwhile, the euro-zone faces mounting pressure from the recent massive squeeze in real incomes which threatens to push the region into recession.

In China, the government’s immediate challenge has been quashing the continuing Omicron outbreak. Unfortunately, the country’s zero-COVID initiative has so far done little to affect the spread of the virus. What it has done is tightened restrictions across some of the country’s biggest and most economically-important cities.

The Omicron variant is by far the biggest wave of infections to hit China, a country still woefully under-protected in terms of vaccines. According to CE, the areas impacted account for some 40% of China’s GDP and 80% of China’s exports.

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China Activity in Areas with Local Outbreaks (%)

A look at how the metals forecast might be impacted by China's COVID situation.

COVID is Just the Start of China’s Worries

Even without the lockdowns, China’s outlook is challenging to say the least. Its construction sector is struggling under extreme debt. Meanwhile, fewer young buyers than ever before see any benefit to investing in the property market. To make matters worse, exports are struggling as consumption habits adjust in overseas markets.

CE points to Amazon’s Q1 results to illustrate a return to pre-COVID demand levels as services rebound. But according to Reuters, China’s factory activity slumped at the fastest pace in two years this past March. In fact, the Caixin purchasing manager’s index slid to 48.1, its lowest reading since the first pandemic wave in early 2020. The official PMI also dipped into contraction territory, slipping below 50 for the first time this year.

New orders are falling particularly fast, reflecting both stalled domestic demand and the disruption to overseas markets. Of course, most of these disruptions result from Russia’s “special military operation” in Ukraine. Regardless, if China’s economic growth slows and industrial and construction demand weakens, the metals forecast from the world’s largest consumer will weaken as well.

Not surprisingly, metals prices have already started slipping. After reaching a high above $10,600/mt last month, copper prices today fell below $9,500. There’s no doubt about it: the bears have returned to short the market. Aluminum has followed copper’s lead despite a March surge caused by the EU’s rejection of Russian supplies. China’s woes are a factor here, too, as the country has been ramping up primary metal output. As a result, semis exports have been rising strongly.

Weighing the Metals Forecast Against Demand

Demand is the prevailing narrative in today’s metals market. As activity in all three regions continues to slow, demand for industrial metals is likely to ease. Still, whether an improvement in global logistics delays remains a leading or lagging indicator is debatable. Either way, there’s no doubt they are gradually becoming less of an issue for metal supply. The bears may be here, but the market has yet to turn their way. Q2 and Q3 will have a lot to say in that discussion.

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MetalMiner avails itself of both Artificial Intelligence (AI) and Technical Analysis (TA) to better understand market direction. In short-term analyses, AI works particularly well. However, when looking for long-term answers, TA is far more insightful. This is particularly true when determining the best market forecast in terms of bullish, sideways, or bearish.

Charts, Forecasts, and Fundamentals

For instance, of late, much attention has been paid to the S&P 500. This is because the index appears poised for a potential shift from sideways to bearish. Some would define such a shift as a “20 percent decline,” but percentage declines have little to do with market direction. Instead, they involve an actual break in support or climb over resistance.

The following chart helps illustrate just how critical this juncture will be for the future of the S&P 500. Here, red lines indicate resistance and green lines indicate support.

Obviously, prices can go in one of two directions. Still, the “breaking of support” to lower lows would not suggest a healthy economy. Ironically, some of the latest metals charts look pretty similar to the S&P 500. Take aluminum, for example:

Aluminum Price Chart

Source: MetalMiner Insights

Though still trading at historic highs, you can clearly see that aluminum has fallen below a significant support level. Suddenly, even the best aluminum price forecast seems derivative of other indices. In fact, in the following chart, you can see that Tin is following a similar trend.

Tin price chart

Source: MetalMiner Insights

Typically commodities and the stock market do not share much – if any – price correlation with one another. Indeed, our state-of-the-art MetalMiner correlation analysis only reinforces this truth. However, a few economic tea leaves suggest that trend changes could come sooner rather than later.

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A Rising Dollar Does Not Lift All Boats

The U.S. Dollar is currently trading at 103+/-, a five-year high, and has a negative .93 correlation with commodities prices. This suggests that prices could shift trends rather abruptly. Meanwhile, a recent WSJ article indicated that “higher interest rates typically support the dollar by making U.S. assets more attractive to yield-seeking investors. Investors expect that the Fed will increase short-term rates more aggressively this year than its central-bank peers.” Such a move could, in turn, put pressure on commodities regardless of supply chain hiccups, high energy prices, etc.

At the same time, MetalMiner has had its eye on Japan, where the yen has fallen to a 20-year low against the dollar. According to that same WSJ article, the Bank of Japan has pledged to maintain low interest rates despite rising inflation. Meanwhile, the Europeans may follow the Fed’s example, but they certainly won’t lead. All in all, the mix of easy and tight monetary policy will likely keep the dollar supported.

Of course, in addition to the higher USD, China’s FXI shares have begun trending down. This suggests that the world’s second-largest economy has its own challenges to overcome in the coming months (and years). Among them are Shanghai’s lockdowns, which recently entered their 6th week with no end in sight. Currently, even the best market forecast for our China’s vast manufacturing economy looks rather bleak.

Ultimately, rising inflation, along with some signs that U.S. demand has begun to slip, could impact both market momentum and trader sentiment. But whichever direction the market takes us, MetalMiner’s analysis will help lead the way.

Prepare yourself for tomorrow’s market today! Join us Wed May 4 from 11:00-11:30 for a participatory workshop on preparing your metal buy for a recessionary environment. And makes sure to stay informed about global steel markets with MetalMiner’s monthly MMI Report. Sign up here to begin receiving it FREE of charge.

 

Recent key shifts in macroeconomic indicators could significantly impact both aluminum and steel prices. Historically, the best way for companies to protect themselves during times of uncertainty is to change buying strategies.

Most commodities have traded in a bull market for the past one and a half years. This has allowed companies of all sizes to see where their supply chains face the greatest gaps. Still, anecdotal evidence suggests that the fear of rising steel prices and ongoing supply chain constraints have caused buying organizations to “stock up” on materials. This has not only helped build inventory but also shore up supply. Now, many companies are seeing their orders slowing down.

Economic Indicators Suggest Slowing Demand

For instance, last month, the ISM Manufacturing Report or PMI continued its expansion. However, one troubling reading came from the new orders subindex, which dropped from 61.7% in February to 53.8% in March. According to MetalMiner, that data, along with falling durable goods orders and other key macroeconomic indicators, suggests a slowing economy.

To see our take on macroeconomic indicators, subscribe to the free MetalMiner Weekly update email. This week, the newsletter covers the three main macroeconomic drivers while analyzing their likely impact on metal prices.

ch;anging metal prices mean new buying strategies

Petr Ciz/Adobe Stock

Success Means Shifting Buying Strategies

It’s common knowledge that buyers are recovering from more than a year of supply woes and shipping constraints. Still, should the US economy slow, these organizations will need to reevaluate their sourcing tactics. Of course, the same would be true if we were to enter a recession.

Luckily, these companies can adapt using a wide range of buying strategies. Many of these can then mitigate holding high priced inventory during a slower or recessionary business cycle.

Some Strategies to Consider

  1. Move off a scrap steel contract and consider contracting using a long-term index.
  2. Avoid locking into long-term fixed-price contracts. This is especially important if metal macro trends change from bull to sideways or bull to bear.
  3. Communicate conservative demand forecasts with suppliers on a longer-term outlook. However, they should share actual demand data for 4 and 8 weeks out (or further, if possible)
  4. In rising markets, it makes sense to lock in contracts earlier vs. later as prices could still rise. In recessionary markets, the exact opposite holds true. That’s why companies should hold off on locking anything in for as long as possible.
  5. Identify the KPIs that serve as their company’s “early warning signal” of slower demand. That means paying close attention to sales pipelines, time to close deals, pockets of softness, etc.
  6. Companies should keep watch on their +/- volume tolerances from mills and service centers. A lot of people got squeezed on that when materials were in short supply. Now is a good time to re-examine those tolerances and work with suppliers to shore up a wider +/-.
  7. Those companies that did stock up on inventory should see the next few months as an opportunity to burn through it. The market remains pretty strong, but it could look a lot softer three months from now. In other words: if you added a cushion to your safety stock, now’s the time to use it!
  8. Mills and service centers that “acted incorrectly” with customers during the shortage phase should come back looking for business again. This would be a great chance to barter lower prices off the decreased demand. Likewise, suppliers that handled the bad times particularly well should be rewarded. After all, it’s all about relationships!

There’s Always More to Learn

No matter what the future has in store for the marketplace, there will always be opportunities to save and make money. In the end, it always comes down to preparedness, know-how, and a little willingness to innovate.

MetalMiner CEO Lisa Reisman and VP of Business Solutions Don Hauser will be offering up additional insights during a Wed, May 4 workshop. To learn even more strategies for dealing with a slowing economy, sign up to attend here.

 

 

 

 

 

Don’t worry – this isn’t another “reds-under-the-bed” story. Rather, it’s a look into how Chinese aluminum semis are quickly becoming the market’s main price setting (at least in Europe). With Russia more or less out of the picture and domestic mills booked up for months, China is the only swing producer with capacity to spare. How will all this affect the aluminum price forecast? It’s a conversation many industry insiders are having.

The aluminum price forecast depends greatly on the global supply chain.

Pavel Losevsky/Adobe Stock

Increased Costs and Limited Capabilities

The current European marketplace is so tight that UK consumers simply accepted March’s 35% import tariff on Russian deliveries. This underscored just how few alternatives were available at the time, and now there are even more sanctions on the way. See below for current aluminum prices of 5251 semis:

European aluminum prices

Source: MetalMiner Insights

Our revolutionary SaaS platform, MetalMiner Insights, contains a full range of semi-finished aluminum prices for both the European and American markets. Learn more here.

Both consumers and distributors are hesitant to place new orders with Russia. Some are obviously acting in support of Ukraine. Others, meanwhile, are more anxious about the supply chain risk. Indeed, the ability of Russian mills to deliver in the coming months remains highly suspect. This means that even those consumers willing to stomach the price increases still need to consider the possibility of extensive delays.

Keep yourself informed about aluminum prices and other important metal news by following the weekly MetalMiner newsletter here

China’s Aluminum Production is Way Up

China has spare semi-finished production capacity. The country also has a recovering primary metal smelting sector with better availability of power supplies. This is especially true with winter ending and environmental controls relaxing. Even Yunnan province, still reeling from drought, is issuing more power permits.

In a recent Global Aluminum Production note, Capital Economics detailed how the current marketplace affected overall output. For instance, in March, global aluminum output fell by 1.5% y/y. The primary reason was high power costs, which kept a lid on production growth.

However, Chinese Aluminum output actually improved during this time. From February to March, the country advanced from -3.2% y/y to -2.1%. In terms of m/m, this represents a massive 11.6% growth. One has to assume the county could have performed even better had COVID-19 lockdowns not thrown a wrench into the machine.

Going forward, Capital Economics expects the ongoing lockdowns to similarly affect April’s production output. However, they went on to say that the situation should ease as Q2 unfolds.

Supply, Demand, and the Aluminum Price Forecast

The only growth in primary aluminum output has been in the Middle East and Asia, where power costs are relatively low.

Source: Capital Economics

Meanwhile, a recent annexure (Annex XXII) to the EU’s 2014 Regulation No. 833 suggests imports of Russian-made aluminum into the EU could be banned this month. Still, details remain sketchy at this point. For now, current contracts will be permitted through Q2.

The change could pave the way for further restrictions, which could affect the shipments of Russian metal leaking over the East-West border. Many of these supply lines are being held up via Russian trucks crossing into Belarus and then the EU. Though so far immune to the EU ports ban on Russian ships, a hold on payments to Russian suppliers would put an end to these efforts.

There’s no denying that many consumers expected the aluminum market to soften this year. After all, 2021 year-end contract negotiations had many consumers reluctant to fix full-year prices. The expectation, of course, was that metal prices and conversion premiums would ease after H1. In reality, conversion premiums are remaining stubbornly high, even as the LME has backed off those March peaks.

The global metal marketplace moves fast. With Metal Miner’s monthly MMI Report, you can stay on top of all the latest news. Sign up here to begin receiving it completely FREE of charge. 

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