CRU: June’s Early Optimism Fails To Sustain LME Price Rally

The LME aluminum 3-month price settled and was last trading at $2,185 per metric ton. The afternoon of Thursday, June 22, the price fell sharply and stopped at the $2,200-per-metric-ton support level. However, on Friday, June 23, the support did not hold and the price quickly went to an intraday low of $2,181 per metric ton, which is a new low for 2023.

On the other exchanges, the Rotterdam values also retreated. The Rotterdam duty-unpaid premium was assessed $5 lower this week at $215–235 per metric ton, and the duty paid premium was assessed $10 lower at $290–310 per metric ton. Meanwhile, the German billet premium was left unchanged at $525–575 per metric ton.

After remaining stable for the last two weeks, ingot premiums are moving lower again in line with the persistent weak demand observed in the market. The feedback from traders and producers is that it is getting increasingly difficult to achieve sales targets. Furthermore, the full return of a contango between cash and 3-month supports the idea of weak spot demand, with many contacts expecting demand to start improving in September.

Going forward, we expect limited downside risk to ingot premiums in North America and Europe as steady prices are needed to attract primary metal, particularly given the recent reports that metal is being shipped preferably to Asia now due to the higher MJP. Given the closures and curtailments of primary capacity, and the Russian self-sanctioning, although demand is weak, the US and the European markets remain net importers of primary aluminum and need to remain competitive.

From China, the SHFE was closed two days this week (June 22-23) as part of the Dragon Boat Festival and will resume trading on Monday, June, 26. Last booked at RMB 1830 and trending lower at the end of the shortened week.

US Midwest Premium Consolidates but Lower $0.235 to $0.245¢ per Pound

While the pausing of interest rate hikes by the Fed caused the LME price to strengthen last week, the US Midwest premium has not moved significantly since early 2023. There have been multiple macro events that have come and gone, such as the banking sector uncertainty, debt ceiling negotiations, and now the pausing of interest rate hikes, and none have moved the premium in either direction. This hints that there is ample support at current levels and that it is closer to the lower replacement costs as freight and other inputs have fallen throughout the year.

Imports across the board are down for both primary and value-added primary forms. Producers continue to shift more towards ingot as the form of choice, with the billet market slowing on sluggish extrusion demand. The outlook for the second half of the year is more positive than Q1 and Q2, with many looking towards the summer months to provide a barometer for how things will play out. Travel is booming, which could be bullish for transportation and non-residential construction, while can sheet looks to recover from its slow start with many important summer beverage consuming holidays approaching and beverage brands starting to ramp up their in-store promotions. 

Not Quite Done Battling Inflation

The lower LME price comes amid evidence that the global fight against inflation is far from over despite the Fed keeping its rate steady at its last June meeting. Out of Japan comes reports that its inflation rate was higher than expected, adding to expectations the central bank there might adjust its policies to reflect upward price pressures. The Bank of England this week hiked its main interest rate by a bigger margin than expected to a 15-year high. Central banks in Norway, Switzerland and Turkey also raised borrowing rates.

Meanwhile, in the US, the Fed Chair, Jerome Powell, reiterated his belief that inflation was still too high and that further increases to rates may be necessary. The comments were made as he testified before a Senate committee on Thursday. The global, fungible nature of aluminum and aluminum products makes broad macroeconomic surveillance necessary. Intertwined with geopolitics, macroeconomic policies and related currency and trade flow implications keep the CRU Aluminum Analysis searching for trends that influence aluminum markets.

By Stephen Williamson, CRU research manager, stephen.williamson@crugroup.com