aluminum price

The August Aluminum Monthly Metals Index (MMI) fell two points last month. The current Aluminum MMI index now stands at 93 points.

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LME aluminum prices fell in July. However, the rate of the declines has slowed. Price changes do not appear to be sharp and selling trading volume remains weak. The price decrease looks like a retracement after the peak in April due to Russian sanctions.

Source: MetalMiner analysis of FastMarkets

LME aluminum prices have fallen again toward the stiff support level that aluminum prices had during 2017 and 2018. LME aluminum prices fell towards that support level in December 2017, in April 2018 and back again in July 2018. However, aluminum prices rebounded each time (and again in July) from that level.

How aluminum prices react to this stiff support level will give some insight on upcoming aluminum price movements. Buying organizations will want to follow aluminum price movements closely to identify the perfect moment to buy forward and lock prices.

Chinese Aluminum

Chinese aluminum output increased by 1.6% in June, according to the National Bureau of Statistics.

The gradual ramp-up of new smelting capacity has increased production. The daily output figure increased to 94,000 tons in June versus the previous 90,000 in May, signaling an increase of 0.8% year on year.

Chinese increased exports received a boost from a favorable price arbitrage, with a weaker yuan. Exports reached 510,000 tons in June, the second-highest figure on record.

U.S. Domestic Aluminum

As a result of the ongoing uncertainty in the aluminum market, U.S. aluminum Midwest premiums have skyrocketed this year.

August’s premiums, however, have started to decrease, sitting at $0.19/pound. The current premium has slid to April 2018 levels, but still appear close to its four-year high at $0.20/pound.

Source: MetalMiner data from MetalMiner IndX(™)

What This Means for Industrial Buyers

Despite the recent downtrend, the LME aluminum price trend suggests a continuation of the bull market that started last year.

Adapting the right buying strategy is crucial to reduce risks. Buying organizations that want to start doing so now may want to take a free trial now to our Monthly Metal Buying Outlook.

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Actual Aluminum Prices and Trends

The metals in the Aluminum MMI basket generally fell this month.

LME aluminum prices decreased this month by 3.88%, with a closing price in July of $2,076/mt. Meanwhile, Korean Commercial 1050 sheet traded flat in August, with a reading of $3.57/kilogram.

Chinese aluminum primary cash prices increased by 0.361%, while China aluminum bar fell 5.33%. Chinese aluminum billet prices also decreased 5.33% this month, to $2,197/mt.

The Indian primary cash price fell by 3.27% to $2.07/kilogram.

The Automotive Monthly Metals Index (MMI) retraced four points, hitting 99 for our August MMI reading.

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U.S. Auto Sales

July was a down month for Ford, which saw its U.S. sales drop 3.1%. Ford car sales were down 27.7% year over year, and 15.7% in the year to date.

However, truck sales continue to shine, with sales rising 10.2% in July.

“And when you look at the underlying economy, it remains very healthy, and that would be indicative of what we’re seeing in the truck market, with F-Series posting gains and vans posting very big gains for Ford Motor Company,” Ford Sales Analyst Erich Merkle said.

It was a different story for Fiat Chrysler, which reported a 6% sales increase compared with July 2017. According to a company release, its Jeep brand had its best July ever, with retail sales up 16%.

Honda reported an 8.2% year-over-year drop, but touted its growing truck sales.

“For the first time in our company’s history, the Honda brand is on pace this year to sell more light trucks than passenger cars,” said Henio Arcangeli Jr., senior vice president of the American Honda Automobile Division, in a release. “Honda’s unique flexibility within our U.S. manufacturing operations has played a critical role in our ability to adjust our production mix and capitalize on the market’s shift toward light trucks.”

Toyota reported its July sales were down 6.0% year over year, but noted July marked its best month ever for light-truck sales.

General Motors no longer reports sales on a monthly basis, instead opting earlier this year to report on a quarterly basis.

Pumping the Brakes?

Late last month, President Donald Trump and European Commission President Jean-Claude Juncker met at the White House, a meeting that yielded an agreement of sorts to pump the brakes on new tariffs.

However, cars were exempted from the agreement between the two leaders.

A U.S. Section 232 investigation into imports of automobiles and automotive imports is still ongoing. The Department of Commerce launched the investigation using the Section 232 statute — also used to impose steel and aluminum tariffs — in late May and a public hearing was held July 19.

GM Seeks Exemption for Buick Envision SUV

Although the Trump administration has yet to impose new tariffs on imported automobiles, General Motors has asked that its Buick Envision SUV, which is made in China, be exempted from any new tariffs, the Detroit Free Press reported.

Most of GM’s sales of the SUV model come from China, according to the report, and the company argues production in the U.S. would thus not be feasible.

Earlier this summer, GM expressed its opposition to the imposition of new automotive tariffs, saying they would lead to job losses and would impact the automaker’s competitiveness in the global marketplace.

Actual Metal Prices and Trends

It was an overall down month for prices within the automotive basket of metals.

U.S. HDG steel fell 0.7% to $1,103/st. U.S. platinum bars fell 1.8% to $837/ounce, while palladium bars dropped 2.1% to $928/ounce.

Chinese primary lead dropped 14.7% to $2,722.87/mt. LME copper fell 6.1% to $6,236.50.

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U.S. shredded scrap steel held steady at $371/st. Korean aluminum also held steady, sticking at $3.75/kilogram.

The Construction Monthly Metals Index (MMI) lost three points this month, hitting 90 for our August MMI reading.

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U.S. Construction Spending, Employment

According to U.S. Census Bureau data, U.S. construction spending in June fell 1.1% from the previous month.

Spending in June hit $1,317.2 billion, down from $1,332.2 billion in May. However, the June spending time marks a 6.1% increase from the June 2017 spending total of $1,241.3 billion.

For the first six months of the year, spending hit $619.9 billion, marking a 5.1% increase from the same period in 2017.

Broken down further, private construction spending hit a seasonally adjusted annual rate of $1,019.8 billion, or 0.4% below the revised May estimate of $1,023.9 billion. With private construction, residential construction hit $568.3 billion in June, down 0.5% from the revised May estimate of $570.9 billion. In addition, nonresidential construction was down 0.3%, amounting to $451.5 billion in June.

As for public construction, spending in June hit $297.4 billion, 3.5% below the revised May estimate of $308.3 billion. Under the umbrella of public construction, educational construction was  down 11%, amounting to $67.9 billion. Highway construction was down 1.3%, hitting $93.9 billion for the month.

Meanwhile, according to preliminary Bureau of Labor Statistics (BLS) data, construction employment hit 7,222,000 in June, up from 7,209,000 in May.

Billings Growth Slows

Architecture billings growth continued in June, according to the Architecture Billings Index (ABI), but the pace of growth slowed last month. Nonetheless, June marked the ninth straight month of billings growth.

The June ABI hit 51.3, down from the previous month’s 52.8 (any reading above 50 indicates growth).

By region, however, the billings landscape was a mixed bag.

The South region posted a 57.4, while the Northeast posted modest growth with a reading of 50.2. The Midwest and West lagged behind, however, with readings of 49.8 and 46.9, respectively.

In this month’s survey of industry professionals, many indicated rising expenses was a concern.

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“More than nine in 10 firms (92 percent) indicated that they are concerned to some degree about managing the costs of running their firm at the present, with 52 percent reporting that it is a major concern, and 40 percent reporting that it is a minor concern,” the ABI report states. “Small firms tended to be less concerned about firm expenses than large firms, although firms of all sizes were generally concerned.”

Actual Metal Prices and Trends

The U.S. shredded steel scrap price held flat at $371/short ton.

Chinese rebar fell slightly, dropping 0.2% to $623.84/metric ton. Chinese H-Beam steel fell 6.0% to $606.22/mt.

European commercial 1050 sheet aluminum fell 4.4% to $2,867/mt.

Chinese iron ore PB fines fell 2.8% to $77.06/dry metric ton.

China Zhongwang Holdings failed to close a deal to buy Aleris last year after concerns were raised about the national security and corporate responsibility track record of the Chinese group.

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Not that we think of Novelis as Indian, but they are. Since 2007, the ex-Alcan flat-rolled manufacturer has been owned by Hindalco, part of India’s Aditya Birla Group. Novelis was already the world’s largest flat-rolled aluminum product producer before the Aleris deal.

Now, with the addition of Aleris, Novelis will acquire some very sophisticated aerospace technology — particularly in the plate market — and further secure the combined group’s position in high-technology products for the aerospace, automotive and defense sectors, not just in the U.S. but globally. Aleris is particularly strong in Europe and has just opened a new rolling mill in China.

Hindaloc will acquire Aleris in a $2.6 billion deal, which will include $775 million of equity and $1.8 billion of debt, funded by Novelis rather than the parent, Reuters reported.

The market reacted positively to the news.

The combined entity, comprising Novelis and Aleris, will have annual revenues of $15 billion when Aleris’ $3 billion has been added.

Revenue aside, the group’s combined sheet-rolling position will become even more significant at 4.4 million metric tons, raising concerns in some quarters about its market-dominating position.

Although Novelis has invested heavily in facilities to meet rising automotive demand, it is traditionally one of the largest suppliers of aluminum for beverage cans, which is more at the commodity end of the market. Novelis’ ability to competitively serve these markets could be of immense value if the culture can be migrated to Aleris, whose focus has been more in the high-value aerospace and automotive industries and has struggled with profitability.

Market dominance fears aside, Western producers need to invest and create critical mass to counter growing exports from China’s giant semi-finished product manufacturers, which are continuing to add capacity despite having much more than the domestic market can consume.

China is exporting in excess of 4 million tons per annum of semi-finished products, so far aimed more at the commodity end of the market. But Chinese producers have the ability, certifications and domestic experience to service aerospace and automotive markets, too.

Current trade tariffs notwithstanding, Chinese producers are going to be increasingly targeting these markets, if not penetrating the U.S. then displacing Aleris and Hindalco in Europe, South America and Asia.

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In the short term, the merger of Novelis and Aleris could generate cost savings, technology transfers and adoption of beneficial best management practices. In the longer term, it should be seen as positioning a more robust Western market leader against a growing threat from China, eager to compete in higher-value markets and willing to play the long game to get there.

Source: wto.org

Ultimately, it went along expected lines.

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India and a handful of other nations held trade dispute settlement consultations with the United States over its steel and aluminum tariffs in Geneva, but got absolutely no concession from the latter, according to reports coming out of the meetings.

India, Canada and Mexico confabulated with the U.S. on the issue of the latter imposing additional duties of 25% & 10% on steel and aluminum imports.

Earlier this month, China, Norway and the European Union also held similar talks with the U.S., under the aegis of the World Trade Organization (WTO) in Geneva. Almost all such disputes are held under Article 4 dispute settlement consultations. MetalMiner previously reported about the Geneva meeting and its attempt to try and break the trade tariff imbroglio.

The U.S., as many had expected, stuck to its guns that no law required it to provide any reason for the Section 232 measures on steel and aluminum, since they remain “sovereign determinations” that fall under Article 21 of the GATT 1994, according to media reports.

Apparently, in an earlier meeting, the U.S. told the representative of another country in such a meeting that Section 232 revolved around issues of national security, and was thus not available for review or capable of resolution by WTO dispute settlement.

Representatives of India and other nations raised several questions around the proposed tariffs. They claimed the additional duties constituted a “disguised safeguard” measure, as the U.S. Department of Defense had said that there was no threat to the country’s national security from steel and aluminum imports.

The U.S. delegation, on the other hand, maintained it was unable to share the reasons for the decisions under the Section 232 provisions. Delegates also wondered how countries such as Australia, Brazil, Korea and Argentina had been exempted from similar additional duties, and why these imports did not pose a national security threat to the U.S.

Clearly, unable to get much from the U.S. at this meeting, the only recourse the six nations may have is to approach the WTO with a request to establish a disputes settlement panel to rule against the U.S. measures.

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In March this year, the U.S. had also launched a challenge at the WTO against India’s export subsidies, arguing the programs give Indian companies an unfair advantage. The U.S. claimed these export subsidy programs harmed American workers by creating an uneven playing field on which they must compete.

Stock markets in the West react to peaks and troughs on the Shanghai stock market as if the market were a true indicator of the health of the Chinese economy. Shanghai has been down since talk of sanctions has spooked markets in China, Europe and the U.S.

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But in some parts of the world, where dependence on China is more than a simple +/- 0.1% of GDP, whole economies are reacting to the fear of a slowdown in China.

A recent Financial Times report details how the Aussie dollar has slumped 4.5% in just two weeks. Trade tensions have risen over investors’ fear for the prospects of the country’s largest trading partner, an indicator of how dependent has Australia become on China’s health and prosperity.

Likewise, copper, which for decades has been dubbed “Dr. Copper” for its supposed sensitivity to the health prospects for global growth, should maybe be renamed “Sino Copper” for the way in which it increasingly has become tied to the fortunes of one country (China) rather than the global economy.

After touching a four-year high of $7,348 a ton on June 7, copper has plunged 14%, or more than $1,000 to $6,303 a ton, the Financial Times reported, as investors fear a slowing China will be detrimental for copper demand later this year and next.

China is the world’s largest importer of copper, and Australia — the fifth-largest copper producer — is intimately tied to the world’s second-largest economy. China is its biggest customer, not just for copper but also for iron ore, coal, aluminum, bauxite and a range of other materials.

A follow-up article will analyze a wider range of metrics to better understand the state of the Chinese economy and to what extent the country’s growth trend for 2018 is a direct result of tariffs (compared to factors in play before April).

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What that will show is that China had much to contend with prior to tariffs and a trade war broke out. While massive foreign exchange reserves and a well-funded banking system means the economy is essentially sound, the current trade issues have come at a bad time for policymakers in Beijing and may partly explain the relatively restrained response from the authorities.

Falling aluminum prices over the last month have given rise to some asking if aluminum is now on a prolonged downward trend.

Tempting as it is to look at day-to-day movements, a more holistic analysis suggests otherwise.

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As a recent Reuters article suggests, April saw the Rusal-related sanctions effect lift prices dramatically. The supply market went into shock at the prospect of 6% of the Western world’s capacity being denied to the market by U.S. sanctions on Oleg Deripaska, blocking consumption of Rusal aluminum primary metal.

The resulting scramble for supply caused massive price inflation for those that could get metal. Some processors caught out to the point of reduced supply for the late second and early third quarters. A backtrack by the U.S. eased concerns and action by Deripaska to exit or relinquish control of En+, Rusal’s largest shareholder, have further eased concern.

Gradually, the price has unwound and at current levels is a whisker over its low point in April.

Source: LME

Aluminum’s slide is part of a wider base metals retreat in the face of a stronger dollar, plus macro concerns about trade wars and a cooling Chinese economy.

One metric that commentators sometimes consider at a basic level is inventory levels. Falling global or exchange inventory is indicative of demand exceeding supply.

With aluminum, that has not always been as clear, since more metal is held off exchange by the stock and finance trade than is held on the major LME, CME and SHFE markets.

In the early part of the decade, some analysts simply ignored these numbers on the basis they couldn’t estimate with any degree of accuracy what was happening to these shadow stocks, and believing they were locked up for the long term (making their presence almost irrelevant). This publication never took that view and has always tried to bring an estimate of off-exchange market inventory movements into our estimates.

At its peak, these massive stocks approached 10 million tons, while LME stocks hit a peak of some 4.5 millions tons. However, since 2016 both have fallen quite rapidly, such that today CRU estimates off-warrant stock at some 6 million tons and the LME, when metal awaiting load-out is stripped out, falls below 1 million tons, according to Reuters.

Nothing illustrates the deficit condition of the aluminum industry outside of China more powerfully than those figures.

Over 1.5 million tons per annum has been absorbed on average into the market over the last three years — and the rate has been rising.

As the remaining metal is held by fewer parties, distortions are beginning to appear in market pinch points, specific pricing points used by the LME market to roll over positions, such as the third Wednesday of the month.

Source: Reuters

This graph from Reuters illustrates the spike in spot or cash prices over three months, a condition called backwardation that is illustrative of a market under stress.

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The frequency the market slips into backwardation has been increasing, with three spikes this year alone. A market in deficit is unlikely to exhibit bear pricing for long, current apparent weakness is more a factor of short-term dollar strength and anxiety over trade conflicts.

Aluminum firm Alcoa Corporation reported its second-quarter earnings Wednesday, with some numbers showing the impact of current market trends and forces.

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The Pittsburgh-based firm reported $3.6 billion in Q2 revenue and $904 in adjusted earnings before interest, tax, depreciation and amortization (EBITDA). The firm’s Q2 EBITDA marked a 34% increase from Q1’s $653 million.

“Higher alumina and aluminum prices, as well as a stronger U.S. dollar, were the primary factors driving this sequential increase,” Alcoa’s Q2 earnings report states. “Somewhat offsetting these factors were unfavorable mix and higher costs for energy, raw materials, and maintenance activities.”

However, the firm downgraded its annual EBITDA forecast from $3.5 billion and $3.7 billion down to between $3.0 billion and $3.2 billion “due to current market prices and other factors.”

“Market pricing continued to be favorable in the second quarter and drove a 38 percent sequential increase in adjusted EBITDA excluding special items,” Alcoa President and CEO Roy Harvey said. “These market tailwinds also facilitated greater progress on our strategic priorities to reduce complexity in our Company, drive returns from our assets, and address pension liabilities to strengthen the balance sheet for the long-term.”

The firm attributed the lower forecast to “current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts.”

“While markets and trade dynamics are likely to remain fluid, we will continue to be focused on driving value for our stockholders through all market cycles,” Harvey added.

On the operations side, Alcoa reported that the third potline at its Warrick Operations in India will be restarted by the end of the year. Two of three potlines were restarted, and the third line due for a restart was shut down in May due to a power outage.

Alcoa estimates the restart of the third potline during the second half of the year to cost an estimated $5 million. In addition, once the partial restart schedule is completed at Warrick, the company estimates the smelter’s annual operating capacity will be 161,000 metric tons.

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Alcoa closed Wednesday at $47.96/share on the New York Stock Exchange. The stock’s 52-week high came on April 18 ($62.35), buoyed by the then still relatively new Section 232 tariff on aluminum (and steel).

niyazz/Adobe Stock

The U.S. and India are scheduled to sit across the table this week in Geneva to discuss the case filed by India with the World Trade Organization’s (WTO) dispute settlement mechanism over the U.S.’s imposition of import duties on steel and aluminum.

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The talks will be held under the aegis of WTO’s dispute settlement mechanism, according to a news report by the Press Trust of India.

India is part of the group of nations — which includes China, Russia and Norway, among others — to have filed separate dispute claims on the topic with the WTO. The meeting is part of the consultations the U.S. will be holding with all such countries on July 19-20.

It may be recalled that the U.S. had imposed a 25% tariff on steel and a 10% tariff on aluminum imports from India. India’s exports of the two commodities to the U.S. stands at about U.S. $1.5 billion per annum. India had initially tried to raise the issue with the U.S., and then informally with the WTO, calling the move an “abuse of global trade provisions that could spiral into a trade war,” — sentiments similar to the one expressed by India’s neighbor, China.

In May, India dragged the U.S. to the WTO dispute settlement mechanism over the imposition of import duties.

Consultation is the first step of the dispute settlement process. Incidentally, both the countries are already involved in disputes at the global trade body in the areas of poultry, solar, and export subsidies, to name a few.

According to another news report, senior trade officials of India and the U.S. will meet later this month in Washington to conclude negotiations on a “mutually-acceptable trade package.” Quoting an unnamed official source, it said the meeting comes amid an escalation of the global trade war.

Since India’s proposed additional tariff worth U.S. $235 million on 29 U.S. goods — including almonds and apples — are retaliatory in nature, any rollback of the additional duty on Indian steel and aluminum by the U.S. will lead to a withdrawal of corresponding taxes by the Indian Government on U.S. goods, too.

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The U.S. sees good prospects for its companies in the Indian civil aviation, oil and gas, education service, and agriculture segments.

It was another busy month in the world of metals.

Then again, these days quiet months in metals or in trade, generally, are few and far between.

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Trade tensions continued to rise, as $34 billion in tariffs on Chinese goods went into effect (China responded in kind), and an additional $16 billion in tariffs are under review. This week, President Donald Trump announced the intention to impose an additional $200 billion in tariffs on China, ratcheting up the stakes even further.

Meanwhile, a Section 232 investigation focusing on imports of automobiles and automotive components is unfolding. More than 2,300 public comments were submitted as part of the U.S. Department of Commerce’s review process, and public hearings are scheduled for next week.

Meanwhile, in metals markets, most base metals were down last month, with steel being the exception.

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A few highlights from this month’s round of Monthly Metal Index (MMI) reports:

  • Since peaking at $7,316/mt in June, the LME copper price dropped 12%.
  • The subindex for grain-oriented electrical steel was the only MMI to post an increase on the month.
  • The U.S. silver price hit its lowest level since January 2017, while U.S. gold bullion dropped to a one-year low.
  • Aluminum prices were also part of the general downtrend, as prices continued to move away from this year’s April peak (after Russian companies and their owners, including aluminum giant Rusal, were slapped with sanctions by the U.S.).

Read about all of the above and much more by downloading the July MMI report below.