Aluminum Investment funds, which are mainly speculators in metals markets, continue to increase their long position in LME aluminum. According to the LME’s most recent COT report, out Tuesday, these funds are net long approximately 93,250 contracts, having purchased about 17,500 contracts (net) last week alone. Since the beginning of March, these funds have purchased over 115,000 (net) contracts, flipping from a modest short position to their largest long position in nearly two years. (Source: LME) |
Despite the initial jitters that the LME’s new rules could lead to an influx of Russian aluminum, on-warrant aluminum inventories (meaning the metal is available to trade) in LME warehouses fell by about 100,000 mt last week and another 17,825 mt this week and are now at the lowest level since at least 2005. Most of this slump in inventories stems from warrants being canceled in South Korean warehouses, a known repository of Russian aluminum. This has forced the LME to implement new rules that aim to prevent traders from taking advantage of previous loopholes in the trading of LME stocks. Earlier this month, the LME banned deliveries of Russian-produced aluminum after April 13, 2024. However, aluminum produced before that date can still be delivered to the exchange. (Source: LME) The Russian government will soon discuss supportive measures for Rusal, according to Tass, Russia’s state-owned news agency. These measures could include purchasing Rusal’s products for state reserves and/or abolishing the export tariff. The authorities also stated that they need to perform a study on the global aluminum market before implementing any supportive measures. These comments were made by Viktor Yevtukhov, Russia’s Deputy Minister of Industry and Trade. (Source: Bloomberg) Rusal predicts that China will have a supply deficit of 1.5 million to 1.8 million mt, mainly because they believe Chinese aluminum demand growth will outpace that of supply. They did reiterate that this hinges upon weather conditions in Yunnan province, China’s top production region. Most of Yunnan province’s aluminum output is produced via hydropower and, therefore, is highly dependent upon weather conditions. (Source: Bloomberg) Finally, global daily aluminum production surged again last month, led by China, Asia (ex-China), and North America, according to the International Aluminum Institute. Chinese production in March averaged 115,800 mt/day, up from 110,500 mt/day last March. Meanwhile, production in Asia (ex-China) increased from 12,800 mt/day to 13,200 mt/day, and North American production increased from 10,500 mt/day to 11,000 mt/day. Total global production averaged 195,900 mt/day, up 3.5% compared to last March. Chinese production is expected to jump again this month, according to estimates from Shanghai Metal Market. (Sources: Bloomberg, Shanghai Metal Market) |
Copper As for fund positioning in LME copper, investment funds have now established their largest-ever long position in the red metal. As of last Friday, these funds are net long about 50,700 contracts, eclipsing the prior record from early 2021 by about 2,800 contracts. Fund buying might slow or stop in the coming days or weeks, especially since prices were unable to break the psychological resistance level of $10,000/mt. Also, end-user demand in top-consumer appears to be stalling and could give investors a reason to pause. (Source: LME) Chinese refined copper production was nearly an all-time high last month, despite reports that these smelters have struggled to source raw materials. Last month, daily smelter production averaged 37,000 mt, nearing the all-time high of 38,000 mt/day set last November. Total production in March was 1.147 million mt, up 7.9% compared to a year ago. Similarly, year-to-date production is up 10% compared to last year. According to recent reports, Chinese copper smelters have experienced problems with sourcing raw copper due to mining productions in Central and South America. (Source: Bloomberg) Meanwhile, Chinese buyers are stepping back from purchases, several domestic market participants have stated. This is particularly true for fabricators, who are price-sensitive, especially in times of uncertain demand. At an industry conference earlier this week, Gu Yan, director of copper at Citic Metal Co., stated, “Demand from fabricators is very weak after the recent rally. There is only a bit of demand from the renewable-energy sector, not much from any other markets. Fabricators are all waiting for a price correction to get a breather.” At the same conference, Wang Wei of Shanghai Wooray Metals Group Co. echoed similar comments, proclaiming, “Fabricators have struggled to pass on higher costs to their customers, forcing them to rein in purchases since March.” (Source: Bloomberg) Russia’s Nornickel is planning a copper plant in China, its CEO stated in an interview on Monday. This will be the company’s first major investment inside China, and is largely seen as a way to lessen the blow recent sanctions against Russian metals could potentially have on Nornickel. “This decision was facilitated by the negativity in the form of sanctions against the Russian non-ferrous metals industry. The project will allow us to avoid large losses, which are caused by the current difficulties with settlements, refusals of deliveries, discounts on our metal, creation of inventories,” Nornickel CEO Vladimir Potanin stated. (Source: Bloomberg) Finally, Chilean copper production is expected to reach a record 5.8 million mt next year, according to Chile’s state-run copper agency, Cochilco. This is up from the 5.5 million mt the agency expects this year. Cochilco also believes this will start a “recovery cycle” for copper, as the country’s copper has been hampered by a myriad of issues in recent years. (Source: Reuters) |
Other Important LME and CME Metals
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LME Aluminum |
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LME Aluminum 3M settled at $2,569.5/mt, down $99.5/mt on the week. Aluminum prices were down this week. Compared to last week, the futures forward curve has shifted vertically lower by approximately $100/mt. It remains in a steep contango, meaning nearby prices are lower than forward prices. Aluminum consumers concerned about increasing prices might consider hedging future needs by buying swaps or call options. Depending on risk tolerance, end-users might consider strategies that use only swaps or options or a combination of both. The aluminum market has sufficient liquidity to use swaps and options. Please get in touch with AEGIS for specific strategies that fit your operations. |
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Midwest Premium |
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Prompt month CME MWP last traded/settled at 19.0¢/lb this week. The CME Midwest Premium market is now in a contango from the April ‘24 contract on forward. The CME Midwest Premium swap market is thinly traded, with no options market. Hedging in this thinly traded market is challenging, so we recommend using limit orders. Please get in touch with AEGIS for specific strategies that fit your operations. * Please note all these charts are for desktop only. * |
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LME Copper |
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LME Copper 3M settled at $9,965/mt, up $89.5/mt on the week. Compared to last Friday, LME Copper's forward curve has shifted vertically higher by approximately $90/mt and remains in contango throughout 2024 and 2025. The copper market has sufficient liquidity to use swaps and options. Depending on their risk tolerance, consumers might consider strategies that use only swaps, options, or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations.
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LME Nickel 3M settled at $19,100/mt, down $226/mt on the week. As prices were down this week, nickel’s forward curve has also shifted vertically lower by about $225/mt. It remains in a steep contango, meaning that nearby prices are lower than futures prices. The nickel market has sufficient liquidity to use swaps and options. Depending upon your risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations. |
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CME Hot Rolled Coil (HRC) Steel |
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Prompt month HRC Steel last traded/settled at $826/T, up $16/T on the week. Steel mill profit margins improved dramatically throughout 3Q and 4Q2023 and are also starting 2024 on a good note. The CME HRC Steel – CME MW Busheling Fe Scrap spread, which is generally used as a gauge for steel mill profitability, is now approximately $425/st, up from about $320/st on September 1. This is mainly due to decreasing scrap prices. Thus, steel mills should consider hedging production and raw material usage for 2024. For most steel producers, this would consist of buying CME MW Busheling Scrap swaps and selling CME HRC swaps. Options are available for CME HRC, but they are relatively illiquid. Please get in touch with AEGIS for specific strategies that fit your operations. |
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AEGIS Insights |
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4/25/2024: Mexico's New Tariffs on Steel and Aluminum Imports Create Uncertainty in US Markets 4/24/2024: AEGIS Factor Matrices: Most important variables affecting metals prices 4/3/2024: Important US Economic Data (AEGIS Reference) 2/27/2024: Aluminum Consumers Should Still Implement Hedges, Even Though Russia Sanctions Mean Little 2/2/2024: China's Real Estate Woes Provide Opportunity for Copper Consumers 1/25/2024: Aluminum Starts 2024 On a Down Note, But Potential Supply Shocks Give Consumers a Reason to Hedge |
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Notable News |
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4/23/2024: Mexico sets tariffs up to 50 percent on certain steel imports 4/23/2024: LME moves to stop gaming of Russian aluminium sanctions-based rule 4/23/2024: First Quantum Minerals cuts debt by over $1 bln in first quarter 4/23/2024: Gold holds steady as focus turns to U.S. economic data 4/23/2024: Miner Freeport-McMoRan beats quarterly profit estimates on strong production 4/23/2024: Zambia seeks power imports for key mining sector 4/23/2024: Shortages key to copper's upward price trajectory to new peaks 4/22/2024: Chile's Antofagasta CEO foresees higher 2024 copper prices, plans growth at home 4/22/2024: Codelco eyeing more output, not competition with BHP, Chile's mining minister says 4/22/2024: Chile's president says Codelco output to grow; touts investment climate 4/22/2024: Copper output at Chile's Codelco set to rise this year, CESCO says |