Aluminum prices continue to fall

By Metal miner

The Monthly Aluminum Metals Index (MMI) continued to decline, down 5.14% from July to August.

The the price of aluminum it continued to deflate before finding a low in late July. Overall, aluminum prices fell 9.07% for the month, followed by a modest 2.26% increase in the first half of August.

A high aluminum supply from China provides a bear risk

Aluminum prices appeared to stabilize during August, although risks remain on the downside. For example, global inventory levels remain relatively well supplied. While LME stocks have continued to fall in recent months, their overall volume remains near multi-year highs.

Meanwhile, the contango market, with LME futures continuing to command a large historical premium to spot prices, suggests that the spot market is not supply-constrained. In fact, the delta between the two price points widened in the first half of Q3 to around $55/t. (To learn how to deal with aluminum price changes, read our free resource The art of timing your metal purchase).
In Q2, the average was just $44/t. For reference, futures have an average premium of $22/t over the main cash and have since 2012.

Source: MetalMiner PerspectivesGraphical analysis and correlation tool

Despite the escalation of protectionist measures in the West, Chinese overcapacity continued to shape the global supply landscape. According to the International Aluminum Institute, China’s primary aluminum production continued to increase compared to previous years. H1 2024 saw growth of over 5% over H1 2023.

China’s output in 2024 is resilient, but global supply remains unscathed

While China’s dry season saw production drop slightly earlier in the year, monthly volumes continued to exceed previous years’ totals. That said, production in China’s hydrocarbon-rich Yunnan province remains sensitive to weather patterns. However, as 2024 avoided a drought, production cuts proved relatively modest and too limited to substantially reduce global supply.

Source: MetalMiner Outlook

China exports deflation as economy disappoints

Amid the West’s turn to protectionism, China’s persistent economic weakness continues to push much of its aluminum supply into the global market. The U.S. tariffs have so far done little to stem China’s import volumes, which have seen growth in the first half of 2024. China remains America’s third-largest supplier of metals, behind only the United Arab Emirates and Canada.

China has little choice but to rely on the export market. While it continues to build renewable energy infrastructure and electric vehicles at a strong pace, the continued decline of its real estate sector continues to limit demand for downstream products that require aluminum.

Meanwhile, Chinese consumers continue to demonstrate a warm appetite to buy amid economic uncertainty. Therefore, to maintain its GDP growth, China must look elsewhere for demand. This translated into record volumes of cargo shipments from China to the US and Europe. While some believe that the tapering of US rate hikes could free up China to substantially increase stimulus measures, that seems unlikely.

Many analysts also speculated that the conclusion of China’s third plenary session in July would also boost stimulus, only to be disappointed by what turned out to be a modest and insignificant interest rate hike, which did nothing to change the economic outlook.

Canada Eyes Tariffs Amid Protection Fight

China’s impact on the global aluminum market extends far beyond the US, as its comparatively lower prices remain a competitive advantage. For example, the Canadian aluminum and steel industry began to put increasing pressure on the government to follow the US and Mexico in raising tariffs.

Industry leaders noted the year “existential threat” should Canada not block Chinese supply. As the main supplier of aluminum to the US, what happens in Canada invariably has an impact on the domestic market. This has led to calls for Canada to impose a 25% tariff on both steel and aluminum smelted and cast products in China.

Tariff increases, particularly from Canada, could help soften the impact of China’s overcapacity on Western markets. However, it is worth noting that China will likely look for ongoing loopholes to maintain export demand. These monthly aluminum macroeconomic market indicators are covered monthly in MetalMiner for free Metal Index Monthly Report.

Investment funds give up long bets, raise short

China’s role continues to leave a bearish aftertaste in markets such as aluminum. Even allowing for recent price growth, the unraveling of speculative growth in Q2 has pushed prices back into their 2023 sideways range as markets continue to reassess demand forecasts.

While a strong increase in long positions from mutual funds fueled growth last quarter, their positioning today is in stark contrast to where they were a few months ago. Not only have the funds shed almost all of their accumulated long bets in recent months, but they’ve also started accumulating short bets, enough to nearly wipe out the net long trend that materialized in mid-March.

Investment fund positioning remains an important component when it comes to the price of aluminum and its direction. This is mainly due to their huge positions relative to those of other investors. The change in their current sentiment suggests that they have given up on expectations of a near-term rebound, making it difficult for aluminum prices to rise significantly from the current situation.

By Nichole Bastin

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