LME aluminum

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.

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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.

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.

 

US and UAE flags

Oleksii/Adobe Stock

The Aluminum Monthly Metals Index (MMI) increased by 2.1% this month, as LME aluminum prices traded sideways and the US reinstated the Section 232 aluminum tariff on imports from the United Arab Emirates.

February 2021 Aluminum MMI chart

U.S. aluminum reinstates aluminum tariff on UAE

On Feb. 1, President Joe Biden reinstated the 10% aluminum tariff on imports from the United Arab Emirates.

Former President Donald Trump had lifted the aluminum tariff on his last day in office. The reinstated aluminum tariff went into effect Feb. 3.

The reinstatement suggests that it is unlikely the Biden administration will remove the aluminum tariffs imposed by the previous administration. However, as of today, no further decisions were announced on aluminum tariffs.

In addition, Biden’s “Buy American” plans could impact the U.S. domestic aluminum market. The plan will likely promote the manufacturing of essential components in construction, appliances and electronics in the US.

These measures are welcomed at the primary production level. However, not all end-product manufacturers are on board, as they claim these government interventions will artificially inflate the Midwest Premium.

The new administration also announced the delay of the effective date of the Aluminum Import Monitoring and Analysis (AIM) system that the U.S. Department of Commerce created. The Department of Commerce originally said the system would be available Jan. 25. However, it is delaying the launch until March 29. Licenses will not be required for covered aluminum imports until the new effective date.

Are rising MW premiums causing concern? See how service centers take advantage of that. 

High aluminum scrap demand

A Midwest-based trader told Construction & Demolition Recycling that demand for aluminum scrap remains high at secondary smelters that supply the automotive industry in the US

Chad Kripke, an executive vice president of Kripke Enterprise, a nonferrous scrap brokerage firm, confirmed that many sellers are relying on the spot market rather than signing contracts for 2021. This signals that it is a seller’s market.

This market environment is due to the reduced flows of scrap, which has caused spreads to tighten. As a result, secondary producers are opting to purchase scrap at what they might view as high prices rather than risking a lack of material.

New on MetalMiner Insights

This month, MetalMiner added additional U.S. aluminum prices to its Insights platform.

Besides the U.S. Midwest Premium Futures, the platform now includes prices for some of the most common forms of aluminum sheet and coil. It includes prices for: 1100 H14, 3003 H14, 5052 H32, 5083 H321, 6061 T6 and 6061 T651.

Price data goes back to Jan. 1, 2020.

Actual metals prices and trends

The Chinese aluminum scrap price increased 0.4% month over month to $2,067/mt as of Feb. 1. Meanwhile, LME primary three-month aluminum increased 0.4% to $1,988/mt.

Korean commercial 1050 aluminum sheet remained flat at $3.30/kg. However, its European equivalent increased 8.3% to $2,948/mt.

Chinese aluminum billet and aluminum bar rose 0.4% to $2,389/mt and $2,489/mt, respectively.

Chinese primary cash aluminum dropped 2.4% to $2,365/mt. Meanwhile, its Indian counterpart declined 2.2% to $2.24/kg.

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A recent Reuters article doesn’t say so in as many words but certainly suggests conditions are fertile for warehouse operators to incentivize metal deliveries again and, in the process, queues could form at exit.

Read more

photonewman/Adobe Stock

The Aluminum Monthly Metals Index (MMI) remained flat this month at 82, with the majority of prices in the index increasing mildly, offset by a few declining values.

The current index value remains near a three-year low.

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LME aluminum prices generally moved sideways in October but demonstrated strength late in the month, just as prices look set to drop through yet another support level of $1,700/mt. Prices hit as low as $1,713/mt during the month.

Source: MetalMiner analysis of London Metal Exchange (LME) and FastMarkets

That movement appears halted for now, due to supply disruptions and future supply concerns.

SHFE Aluminum Prices Failed to Gain Steam

SHFE aluminum prices still appear constrained by a sideways pattern capped at around CNY 14,500/mt price band, with upward momentum looking weaker as the year has progressed.

Source: MetalMiner analysis of Fastmarkets

Given recent positive PMI readings and improvements in China’s large-cap FXI, for instance, we should see aluminum prices react — unless excess supply exists in the market, stopping increased price momentum and/or demand remains weak in aluminum-intensive areas.

According to Q3 reporting for the Aluminum Corp of China Ltd, or Chalco, as reported by Reuters, aluminum sales dropped by 13.8% for the quarter, compared to Q3 2018, with sales totaling 940,000 tons. Production dropped 10.4% during the same period (July-September) to 950,000 tons.

The company reported significant raw material, energy and operating cost increases of late, ranging from 17% to 21%, during the quarter.

Chalco reported an average sales price of CNY 13,924/mt for Q3 2019, down by 4.2% compared to Q3 2018, with profits down by 47.7% for the first nine months of 2019.

Recently, prices dropped below CNY 14,000/mt — typically a critical break-even point for producers in China — to CNY 13,800/mt.

Supply Concerns Support LME Aluminum Prices

During the most recent round of corporate financial reporting, a couple of high-profile producers noted higher energy costs hurt profitability and indicated the need to upgrade production methods to more energy-efficient processes. The aforementioned is especially true given the energy-intensive nature of aluminum production, which will necessitate major investment costs.

Rio Tinto commented that closure of its aluminum smelter in New Zealand could be possible due to high energy costs hurting profitability.

Additionally, the price increase could have occurred as a result of speculative activity in that it coincided with a recent uptick in press reports covering aluminum as the green solution in the beverage can industry.

Coca-Cola’s Dasani brand of water will move to aluminum cans from plastic, joining PepsiCo’s move for its Aquafina brand. Ball, the jar company, recently created an aluminum cup to compete with plastic (now in test markets). The company began construction of its first dedicated aluminum cup manufacturing facility, with production expected to ramp up in Q4 2020.

Additionally, total LME warehouse stocks trended down to historical lows earlier this year and remained there, at around 1 million tons. SHFE stocks declined more dramatically this year, now down to under 300,000 tons from around 700,000 tons at the start of the year.

New LME Warehouse Rules Target Improved Data Tracking

The LME announced Nov. 1 it will proceed with a proposed package of measures aimed at the optimization of its warehouse network.

The new rules will require network warehouses to report stocks, even when stored outside of an LME location when that metal will be brought in at a later date.

Also, queue-based rent capping will increase to 80 days — from 50 days at present — over the course of nine months.

What This Means for Industrial Buyers

Aluminum prices found some momentum late in October, but what comes next remains unclear.

Buying organizations interested in tracking industrial metals prices with embedded forecasting should request a demo of the MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term aluminum price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual Metal Prices and Trends

This month, China aluminum scrap prices increased by 2.4% to $1,805/mt, while Chinese aluminum primary cash prices increased by 1% to $1,975/mt.

Meanwhile, Chinese aluminum billet and bar prices declined by 0.8% and 0.7%, respectively, to $2,041/mt and $2,136/mt.

Korean prices showed strength across the board this month.

Korean commercial 1050 sheet increased by 2.4% to $3.04/kilogram, 5052 coil premium over 1050 increased by 2.2% to 3.21/kilogram, and 3003 coil premium over 1050 increased by 2% to $3.08/kilogram.

The LME primary three-month price increased by 1.6% over the course of the month to $1,747/mt after a couple of months of decline.

European commercial 1050 sheet and 5083 plate both increased again this month, rising by 0.8% and 1.4%, respectively to $2,475/mt and $2,837/mt.

India’s primary cash price dropped by 5.1% to $1.86/kg.

While industrial metals started 2019 in an upward trend, the complex showed weakness as 2019 progressed.

In fact, all of the industrial metals hit down around current support levels — and lower at times — during the past few weeks.

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With industrial metals down across the board, are we moving into bear market territory? Or have we witnessed a temporary blip resulting from less certain macroeconomic conditions?

To examine the situation in more detail, let’s have a look at some of the key industrial metals and recent prices.

The DBB Trended Back Down to Mid-January 2019 Values

After a bullish start to the year, the DBB peaked on a short-term basis in early April, then trended back down once more.

Compared with July 2018’s larger drop, this one appears milder, but the short-term downward trend remains.

Source: MetalMiner analysis of NASDAQ.com data

The DBB tracks three key industrial metals: aluminum, copper and zinc. Let’s take a look at each metal to assess price performance using the LME 3-month futures price.

LME Aluminum

Looking at weekly trading volume, it looks like the downtrend in price is played out (based on recent positive trading volume). Also, both positive and negative weekly volumes looked weak recently, with a lack of momentum in prices.

Source: MetalMiner analysis of Fastmarkets.com

This indicates continued sideways movement on the LME aluminum price.

Given that the aluminum market moved largely sideways during the course of 2019, the Moving Average Convergence/Divergence (MACD) can also indicate where the market is at this time.

The MACD tracks the difference between two exponential smoothed moving averages (using the 12- and 26-day averages); it’s the black line in the graph below, which sits along the bottom edge below the price line. The red line, or signal line, uses the nine-day exponentially smoothed average of the MACD.

Source: MetalMiner analysis of Fastmarkets.com

When the values hold above zero, this indicates the market is overbought. When they are below zero, this indicates the market is oversold. If the lines continue to trend downward, then the downtrend is still in process.

By this indicator, the aluminum market looks oversold and a buy signal emerged recently when the longer-term line turned up after a couple of days of upward market momentum and edged past the signal line. The signal line followed a day later, indicating the downtrend lost steam.

Based on this analysis, aluminum prices may have already hit bottom and turned around; therefore, the aluminum market itself does not look bearish at present.

LME Copper

LME copper prices lately have showed clear weakness. However, they found support again recently in daily trading, stopping a further slide in price.

With negative trading volume still registering on a weekly basis, the price dynamic for copper still looks weak.

Source: MetalMiner analysis of Fastmarkets.com

Looking at volume on a weekly basis, we can see that it trended up again last week. Through the first few days of this week, volume registered as negative on the partial week’s data.

Copper prices still look weak.

LME Zinc

Like the other industrial metals, LME zinc prices trended downward in April.

Looking at weekly volumes for zinc, the price action looks mixed. (Note that the last bar shows only partial data for the week in progress.)

Source: MetalMiner analysis of Fastmarkets.com

Given the clearer trend when looking at LME zinc prices, we can use the 4-9-18 day moving average analysis to assess the state of the current downtrend. The result of the analysis shows the downtrend remains in process as the moving averages queue in the expected order, with the 18-day average on top (blue line), followed by the nine-day (purple line), then the four-day average (red line).

Source: MetalMiner analysis of Fastmarkets.com

Therefore, in the case of LME zinc (using this method) the downward trend continues. The red line, however, the shortest average and therefore most sensitive, has recently shown signs of turning back up.

Source: MetalMiner analysis of Fastmarkets.com

Looking at a MACD analysis, based on the 12-, 26-, and nine-day periods, the downtrend continues with the signal line in red sitting above the MACD line in black, while both continue in a downward trend below the zero point of the MACD indicator bar.

Readings below zero on the indicator show bullishness in the sense that prices may turn around. However, in this case the lines continue moving in a downward trend, so we may not have seen the bottom of zinc prices just yet.

What this Means for Industrial Buyers

During recent weeks, the main industrial metals tracked by MetalMiner showed weakness. Will this be temporary or are we looking at a more cyclical movement into bear market territory?

While aluminum prices look relatively stable, copper and zinc prices appear weaker, with no clear signal given that the downturn has passed.

MetalMiner’s Annual Outlook provides 2019 buying strategies for carbon steel

Therefore, while it’s too soon to call a bear market, it’s also too soon to say we’ve avoided one.

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This morning in metals news, the LME aluminum price has tracked back down after spiking last Wednesday, U.S. steel import permit applications fell in September and a Chilean state-owned miner is in talks to sell copper to China’s Minmetals.

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LME Aluminum Hits One-Week Low

The London aluminum price has come back down after surging last week, when news of Norsk Hydro’s decision to shut down its Alunorte alumina refinery sent prices rising.

However, after being granted a permit to use new technology related to waste disposal at the refinery, Alunorte is set to resume operation, Reuters reported, and the aluminum price has retraced to a one-week low.

MetalMiner’s Take: LME aluminum prices decreased, falling again to their previous levels.

Alumina supply concerns moved the LME aluminum price out of its price range. Despite the sharp downtrend, LME aluminum prices do not seem to be in a bear trend. Selling trading volume does not support the downtrend in prices, meaning that prices are just retracing.

LME aluminum prices seem less volatile than other base metals, but they react sharply to news of supply concerns.

Steel Imports Down 10.6% in YTD

U.S. steel imports have dropped 10.6% in the year to date, the Times of Northwest Indiana reported (citing American Iron and Steel Institute data).

According to the report, September steel import market share hit 21%.

Codelco in Talks for Copper Supply Deal with Minmetals

Chilean state-owned miner Codelco is in talks to enter into a copper supply deal with China’s Minmetals, Reuters reported.

MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

According to the report, the miner is in talks to enter a three-year supply deal with the Chinese firm, providing 60,000 tons of copper per year.

Wondering why aluminum prices have pulled back from highs of $2,200 per metric ton on the LME?

After all the hype about environmentally driven smelter closures in China this year and the additional curtailments to be forced on the market in certain provinces during the winter heating seasons, most were expecting the run up in prices to hold steady (at least during the winter period).

Two-Month Trial: Metal Buying Outlook

In practice, although prices have made impressive gains from lows of $1,700 per ton earlier this year to five-year highs of over $2,200 per metric ton, it was largely on the pretext of constrained primary metal supply that it is beginning to become apparent is not happening.

According to China’s National Bureau of Statistics (admittedly not the most reliable of sources) Reuters reports China’s aluminum smelters churned out 2.35 million metric tons of the metal in November, down 7.8% from 2.55 million tons in October and down 16.8% from a year ago.

In reality, while headline smelter capacity has been closed, new planned capacity has continued to quietly come onstream.

Read more

The London Metal Exchange aluminum price has risen steadily since this time last year and seemed at times like it may hit, if not breach, $2,000 per metric ton. Many consumers are asking how much further does it have to go? will it break that psychologically important barrier anytime soon? and if it does, how much further does it have to go?

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

To understand this, we should consider what has caused price strength in recent months and that you will not be surprised to hear is easy to list, but harder to judge to what extent each factor has had an impact.

Why is Aluminum Up?

First, there are general commodity category price drivers, nearly all base metals have shown price strength over the period as industrial demand has remained positive and surplus supply markets have either tightened or gone into outright deficit. In the case of aluminum, there are several indicators suggesting the market deficit has increased over the last 12 months. Physical delivery premiums have increased not just in Asia, but in the U.S. with the Midwest premium currently trading just below ten cents per pound on the CME Group exchange, up from six cents per pound in the third quarter of last year. Japanese physical delivery premiums have been agreed at $128 per metric ton for the second quarter up from $95 per ton for the first quarter.

Source: Reuters

Meanwhile, LME inventory continues to decline with almost 400,000 mt electing to leave the system in February alone. Now it must be said that not all this metal is destined for consumption, as Andy Home in a recent Reuters article points out, the majority of metal leaving the LME system is almost certainly heading to off-market lower cost storage options. Read more

reuters_LME_Aluminum_support)82316_550

Source: Reuters.

LME aluminum has found its support level.

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