Torlizzi Base Metals Report: Aluminum’s supply situation is unclear

Aluminum prices in late February 2018 drifted slightly downward but remain within sight of a six-year London Metal Exchange (LME) high of $2,290.50 reached in January 2018.

A J.P. Morgan analysis, however, notes that Shanghai Futures Exchange (AHFE) aluminum inventories “continue to surge over the last six months, increasing by some 90 percent.” This has caused the premium of SHFE to LME aluminum to shrink to only $73 per metric ton versus the five-year average of $305 per metric ton.

J.P. Morgan also notes, “There are some concerns as to what would happen to Chinese aluminum exports in the event that the United States enacts import duties or quotas on aluminum imports and whether the Chinese exports would go to other markets.”

A Commerzbank analysis, meanwhile, observes, “One can only hope that the Chinese government’s months of fighting ‘illegal’ aluminum smelters will lastingly eliminate the oversupply and generate greater transparency.”

The same analysis also states, however, that despite winter anti-pollution efforts in China that mandated aluminum smelter cutbacks, “Nonetheless, the latest trade figures show that exports of aluminum products [from China] in December 2017 and January 2018 exceeded 390,000 net metric tons in each month, despite the reduction in output. This points to ample supply on the aluminum market.”

Copper began the last week in February with a price rise, as higher imports to China and strong economic data cemented expectations of solid demand from the world’s biggest metal consumer. Three-month copper on the LME closed up 0.2 percent at $7,110 per metric ton, not far from a four-year high of $7,312 achieved the prior month. The red metal struggled later in the same week, as did zinc.

Robust economic data in China reinforced expectations of strong demand for primary metals. Primary copper imports to China rose 13 percent in January 2018 compared with December 2017, while refined nickel imports doubled month-to-month and refined zinc volumes rose by 287 percent.

Chinese imports of scrap metal, meanwhile, fell to the lowest level in nearly two years in January 2018, after restrictions were introduced. Copper scrap imports were down 28 percent year on year. The price of copper in China surged in late 2017 on expectations that lower scrap imports to China would increase demand for refined metal.

In the steel sector in China, the municipality of Tangshan has proposed a plan to require local steel mills to lower their production rates by 10 to 15 percent even after the winter cuts are lifted. This could be a positive for global steel prices and for high-grade iron ore producers.

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