Aluminium market forecast

LME base metals prices are enjoying some respite to the upside

LME base metals prices are enjoying some respite to the upside and were able to produce a mild rebound last week. This comes on the oversold configuration seen in the week to July 15, improved economic numbers out of China in June as lockdown protocols eased, and also a slightly weaker US Dollar Index.



In addition, base metals prices are not reacting too bearishly despite news of sporadic Covid-19 lockdowns in Shanghai. While it remains speculative, we do think that market participants felt that a lot of the negative sentiment caused by a fresh resurgence of Covid-19 in China is now priced in by the base metals.

High energy prices in Europe are likely to stay

A key pipeline that supplies Russian gas to Europe – Nord Stream 1 – resumed its operations on Thursday after a 10-day maintenance break. But Russian state gas company Gazprom has told customers in Europe that it could not guarantee gas supply because of extraordinary circumstances and retroactively declaring force majeure on supply from June 14. As such, high energy prices in Europe are likely to stay and could worsen, especially in the winter months ahead.

LME aluminium stocks at lowest level since May 2001

LME warehouse stocks of aluminium totaled 313,175 tonnes on Monday, their lowest level since May 2001. A high proportion of canceled warrants further reduced availability, with 54.9% of stock currently booked for removal. Aluminium stocks held in Shanghai Futures Exchange warehouses were little changed in the week to July 22. At 191,198 tonnes they were down from 279,128 tonnes on June 3.

Net long fund position fell to a new annual low

LME aluminium’s net long fund position fell to a new annual low of 53,925 lots in the week to July 15. The latest Commitment of Traders Report showed that net length among LME investors contracted by 3,015 lots in the week to July 15, with a modest 1,881-lot reduction in open shorts failing to offset a further 4,896-lot reduction in open longs.

Hydro warned of the market uncertainty

Hydro’s adjusted earnings before income tax depreciation and amortization (EBITDA) for the second quarter was 11.59 billion Norwegian krone ($1.16 billion), compared with 6.60 billion Norwegian krone for the corresponding period last year. Higher realized all-in metal and alumina prices, stronger margins in extrusions and currency effects contributed positively to earnings. Both the aluminium metal and extrusions divisions of Hydro delivered their strongest quarterly results on record. The company warned of the continued uncertainty in the markets. Global supply-chain shortages, high energy prices, and concerns around inflation and increasing interest rates, continue to add uncertainty, according to the company.

We now suspect that several stops were hit, forcing gross longs to liquidate, as the LME aluminium price fell to a new year-to-date low of $2,310 per tonne on July 15. Given lighter funds positioning, the metal’s bullish fundamental backdrop, its increased applications and the greater adoption of greener technologies, long-term investors should soon be attracted to aluminium again.

• The benchmark aluminium premium in the United States declined again last week. Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US at 27.5-29.5 cents per lb on July 22, down 3.39% from July 19’s 28-31 cents per lb, which stayed unchanged since July 12.
• Spot buying remains low and contract offtake minimal, with falling end demand for aluminium products being reported – especially those serving the construction industry.
• European aluminium premiums stayed unchanged last week amid slower trade and rising supply. Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $540-580 per tonne on Friday, unchanged since July 15.
• Fastmarkets assessed the twice-weekly aluminium P1020A (MJP) spot premium, cif Japan at $95-110 per tonne on Friday, unchanged from the previous assessment on Friday July 19, but down $5 per tonne on the low end from $100-110 per tonne a week before on July 12.