Executive Summary
1. LME prices still capped by resistance threshold; selling could push prices toward $1,770 per mton next week.
LME 3M aluminum prices tested the $1,820–$1,850 per mton resistance zone but closed at a one-week low of $1,807.50 per mton, down 0.3% or $5.50 per mton from yesterday. Prices fell from an eight-week intraday high of $1,822 per mton pressured down by comments from US officials that tempered expectations of an imminent trade breakthrough with China. Moreover, the US dollar strengthened to a three-week high amid prevailing concerns about economic growth in China and Europe. As expected, aluminum prices continue to face resistance at our identified target zone of $1,820–$1,850 per mton. Failure to consolidate above $1,820 per mton in the short term could trigger a retracement toward $1,770 per mton.
More details in full report.
2. LME Cash–3M backwardation remains steep as December–January backwardation holds at record level (bearish for premiums).
The Cash–3M backwardation eased slightly to $9.75 per mton from Thursday’s $11.25 per mton as a result of the Cash–December contango loosening to $5.00 from $4.50 per mton and the January–3M widening to $2.75 from $1.75 per mton. However, the December– January backwardation held unchanged from yesterday’s record high of $17.50 per mton. As a result, the Cash–3M backwardation remains short-term bearish for spot premiums around the world.
More details in full report.
3. US WIRE ROD ALERT. US EC wire rod demand seen declining in Q4; domestic wire rod supply could be at risk in the coming months.
US EC wire rod demand is reported weakening since late September/early October. Meanwhile, according to Canadian media reports, the labor agreement extension that was previously agreed between the Aluminum Workers Union of Alma and RTA has been cancelled following the company’s decision to suspend its Alma billet plan project. We understand that labor negotiations will take place early next year. We estimate the Alma smelter has a production capacity of about 100 kmton (mostly EC) wire rod annually.
More details in full report.
4. CANADA ALUMINUM ALERT. Expansion projects on hold in Canada; strategic reviews of smelting operations occur elsewhere.
HARBOR has learned from the Canadian media that Rio Tinto made the decision to suspend for now a billet casthouse project in Alma and the expansion project of the AP60 smelter in Arvida due to the current challenging market outlook. These projects would have required an investment of around $225 million, per HARBOR’s understanding. Moreover, strategic reviews are also being undertaken by Rio Tinto in New Zealand, where the company is evaluating the potential closure or curtailment of its jointly owned primary aluminum smelter that operates at an annualized run-rate around 350 kmtpy.
More details in full report.
5. CHINA ALUMINUM ALERT. Recently disrupted smelting capacity in Xinjiang is on track to return to the Chinese market; more restarts likely to follow.
Xinfa Group to start revamping 500 kmtpy capacity in Xinjiang as soon as next week. The company allegedly plans to restart its recently disrupted primary aluminum capacity in Xinjiang in mid-November; as much as 500 kmtpy of smelting capacity was temporarily idled in August. Fresh production restarts likely to follow in Shandong and Inner Mongolia, where as much as 1.25 million mtpy of primary aluminum production suffered disruptions in Q3 2019—impacting smelters owned by China Hongqiao and East Hope.
More details in full report.
6. China’s aluminum prices struggle to sustain gains amid volatile trade sentiment.
SHFE two-month aluminum prices closed the overnight session at 14,035 yuan per mton ($1,776 per mton, excluding VAT), up 0.7% from yesterday, and above the 200-day exponential moving average threshold for the first time in six weeks. However, in after- hours trading, prices fell back below this threshold as trade optimism weakened after President Trump indicated that no agreement to lift tariffs has been reached yet.
More details in full report.