Base Metals Dashboard - Week Ending August 9, 2024

Aluminum

This week, speculators have cut their net-long positions in LME aluminum to an eight-month low. Long-only positions increased to a five-week high, while short-only positions reached an eight-week high, according to Commitment of Trades Report. Aluminum prices have declined amid a strong U.S. dollar and concerns about the U.S. economy and Chinese demand. Global aluminum production is increasing while demand remains sluggish, with July production expected at 3.68 million metric tons and high social inventories. In China, improved hydropower has allowed smelters to reactivate capacity despite contracting manufacturing activity. For the first half of 2024, global production rose by 3.9% year-on-year, driven by a 7% increase in Chinese output. (Bloomberg)

China's new mandate for aluminum producers to increase renewable energy use by 2025 could significantly impact the aluminum market. With smelters in coal-heavy regions like Shandong required to source 22% of their electricity from renewables and those in hydro-rich provinces like Yunnan and Sichuan aiming for 70%, production costs are likely to rise. This shift may reduce the competitiveness of Chinese aluminum on the global market due to higher energy expenses. However, the ability to purchase Green Electricity Certificates (GECs) may mitigate some cost increases. The mandate aims to increase the aluminum sector's renewable energy share from 24.4% to 25%, potentially tightening supply as smelters adjust operations, which could lead to higher aluminum prices globally. (Source: Bloomberg)

Copper

Copper extends its rally for a second day, as resilient US labor market data alleviated recession fears and bolstered risk appetite. Despite the gains, copper remains down 1.3% for the week, heading for a fifth consecutive weekly loss due to ongoing concerns about weak demand from China's manufacturing sector. Signs of renewed interest from China have appeared, with metal inventories decreasing and the Yangshan copper premium recovering to $63 a ton after hitting unprecedented lows in May. However, the market remains cautious, with uncertainty about the global economy, particularly in the US, likely to limit copper's rebound. (Source: Bloomberg)

Other Important LME and CME Metals & Markets

Nippon Steel's acquisition of U.S. Steel is set to significantly impact the steel market by injecting $1.4 billion into U.S. Steel's operations and bringing advanced technology to enhance production efficiency. This deal aims to revitalize U.S. Steel's blast furnace operations, potentially boosting domestic steel output and setting a higher standard for the industry. The acquisition is expected to increase competition and innovation within the steel sector, which could also benefit related industries, such as automotive manufacturing. By strengthening U.S. Steel and reducing reliance on global competitors like China, this move is poised to fortify the U.S. steel market and improve its resilience against international market fluctuations. (Source: WSJ)
Gold wavered after a 1.9% surge, its biggest one-day gain in three weeks, as US unemployment data eased recession fears and boosted optimism for potential Federal Reserve rate cuts. Despite the rally, gold remains close to last month's record high but faces headwinds as gold-backed ETFs saw their largest one-day slump since October. Market participants are now eyeing upcoming inflation data to gauge the Fed's next move, with gold up 18% this year on expectations of monetary easing, bolstered by central bank purchases and geopolitical risks. If you have exposure to the gold market and are concerned about increasing prices, please reach out to AEGIS for strategies.

LME Aluminum

LME Aluminum 3M settled at $2,301/mt, up $38/mt on the week.

Aluminum prices were down this week. Compared to last week, the futures forward curve remains in a 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.

Midwest Premium

Prompt month CME MWP last traded/settled at 19.2¢/lb this week.

The CME Midwest Premium market is now in a contango from the August‘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. *

LME Copper

LME Copper 3M settled at $8,866.5/mt, down $189/mt on the week.

Compared to last Friday, LME Copper's forward curve has shifted vertically lower and is in contango throughout 2024 and early 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.

LME Nickel

LME Nickel 3M settled at $16,150/mt, down $123/mt on the week.

As prices were up this week, nickel’s forward curve also shifted higher. 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.