Global Supply Demand (Mostly bearish, surprise):
Chinese aluminum demand has remained weak, despite some signs of improvement in economic data. Meanwhile, production in China has surged on improved electricity supply in regions previously impacted by drought. China Global aluminum production continues to rise, with China the leading producer.
USD (Neutral):
The Federal Reserve continues to guide towards at least one interest rate cut at some point in either late 2024 or early 2025, depending on the inflation rate. The most recent data shows inflation has eased but still remains above the 2% target, supporting the idea that rates may come down sooner. Lower interest rates could weaken the US dollar, potentially supporting commodity prices in USD.
Energy Costs (Bearish, partially priced in):
Natural gas prices remain depressed. The July contract is now down nearly 30c since reaching a peak above $3/MMbtu last week. Cooling weather forecasts pressured prices lower as expectations of strong demand moderated slightly.
Economic Slowdown (Bearish, surprise):
Central banks worldwide continue to battle inflation while trying to prevent a slowdown in economic activity. However, China is trying to fight deflation amid a property and housing market crisis. US manufacturing data, based on the ISM Manufacturing PMI, has shown signs of improving after being depressed for nearly two years.
Tariffs/Sanctions (Bullish, priced in):
Keep an eye on inflows/outflows of Russian & Indian produced aluminum in LME warehouses due to sanctions/bans, LME’s proposed carbon tracking program.
Raw Materials (Neutral, partially priced in):
Raw material supply is adequate outside of copper. Copper mine supply has been tight for a while but reports suggest refined copper supply is able to meet current demands.
Speculative Positioning (Bullish, Surprise):
Investment funds, which are purely speculators in the aluminum and copper futures markets, can have a significant impact on financial prices. According to CFTC Commitment of Traders data, speculators remain net long Copper but have pivoted to a short position in the Aluminum market.