Prices Remain Vulnerable To Further Losses As Bottom Has Yet To Be Established

Executive Summary

1. Prices have range traded so far 2019 between $1,850 and $1,930 per mton.
   Attempts to break below $1,850 per mton have failed as speculators have refrained from adding to their short LME positions amid a temporary bounce in alumina prices, higher oil prices, and some improvement in Chinese economic data.
    

2. However, a medium term downward trend remains in place; LME prices have not bottomed out yet.
   In spite of recent range-trading, LME prices remain inside a medium-term technical downward trend that continues to target the key $1,770 per mton threshold—where prices could either confirm a medium-term bottom (base scenario) or unleash a new leg toward $1,660-$1,510 per mton (downside scenario).
    

3. Fundamental bearish forces unlikely to dissipate soon.
   We expect LME prices to remain under pressure in the coming months amid: a) a further weakening of economic conditions in Europe, Asia and the US; b) declining smelting costs; c) booming primary production in the Western World and, d) ROW’s primary aluminum market shifting to a growing market surplus in the 2019-2020 period for the first time in six years.
    

4. We continue to see declining average prices in 2019 and 2020; Consensus downgrades its price forecast again.
   We maintain our long-held view that LME aluminum prices will average $1,925 per mton in 2019 (down 9% y/y) and $1,870 per mton in 2020 (base scenario—60% odds). In our downside scenario (30% odds), prices are seen averaging $1,770 and $1,660 per mton in 2019 and 2020, respectively. Meanwhile, Consensus downgraded again its LME price forecast for 2019 toward HARBOR’s levels but still remained somewhat upbeat for 2020, expecting $2,072 per mton.