The LME aluminum 3-month price is moving down again after the 4th of July holiday and was last trading near $2,130 per metric ton (as of the writing of this article on July 7). The fact that the price resumed sharp declines and is not challenging the next resistance at $2,200 per metric ton shows how bearish sentiment has turned. Now off 9.6% since the beginning of the year, some upside in the second half of this year may be possible on the LME if demand returns.
The Shanghai Exchange (SHFE) aluminium price was also down -1% this week. The cash contract settled at RMB18,190 per metric ton (~$2,519 per metric ton) and last traded at RMB18,215 per metric ton. Asian stock markets dropped sharply on Wednesday after a private survey showed Chinese service and manufacturing activities weakening further in June. While the news is not worse in North America, a retrenchment of demand anywhere in the world further undermines global market sentiment.
For North American buyers and sellers this further underscores the weakness in the Midwest premium, now at $0.24 per pound and falling further with backwardation in Q3 and Q4. A great time to buy as prices have trended lower, mill lead times are close by and delivery performance is reliable once again.
Scrap Flow and Values Also Deep in Summer Doldrums
While the Fed took a break from hiking rates in June, the annual core PCE inflation remains above 4%, which makes it likely that there is room for an additional rate hike before the end of the year. This would slow the economy further, aligning with what has been reported to us of ample supply and weakening demand. Positive signs appear in that the housing CPI inflation has now peaked and will signal a downside trend in H2 2023. More positive news, we saw housing starts increasing by 21.7% MoM in May to 1.631 million units.
The latest scrap receipts surveys in May published recently by the Aluminum Association continued to demonstrate declines. Can stock (class) scrap receipts totalled 59.6 million pounds in May compared to 60.9 million pounds in April 2023, a fall of 15.1% YoY and of 2.1% MoM. Declines in receipts were across scrap classes I and III, yet class II posted an increase of 16.9% YoY and 16.8% MoM. Total receipts for the period January-May 2023 totaled 311.6 million pounds, lower than the 2022 figure by 14.4%. These declines are commensurate with new can sheet shipments and may reverse the trend in Q3 as new can sheet shipments have begun to improve.
The latest UBC prices that we have been hearing are around $0.70 per pound ($1,543 per metric ton) by end of June, compared to $0.755 per pound ($1,664per metric ton) at end of May, falling more rapidly than the previous month by some 7.3%, and constituting some 25-30% discount on the LME. The clean, segregated 5052 has reverted to a small discount to the LME and is being reported at $0.965 per pound ($2,127per metric ton). Absent the semis volume that comes from aluminum can demand, and new housing starts, overall demand is lower YoY despite auto and aerospace growth.
By Steve Williamson, CRU Research Manager
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