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In May, China’s services activity picked up, showing a rise in orders leading to the Caixin Global services purchasing managers index rising to 57.1 in May – up from 56.4 in April. London’s opening on Monday saw an element of short covering from sellers and fresh buying appears to have emerged. US-China tensions, amid reports of unsafe interactions over the Taiwan Strait, may impact aluminium price forecasts and keep the appetite for risk-on assets in check.
Equity markets in the United States closed in positive territory during the week to Friday, June 2, bolstered by Senate approval to suspend the US federal debt ceiling, thereby avoiding a first-ever default. In addition, employment data showed the country’s economy added 339,000 non-farm jobs last month, exceeding the 182,000-jobs increase forecast. Given the unpredictable macro and micro outlook in the United States aluminium market, we will maintain our bearish view on the US Midwest premium in June. Although we think there ought to be some positive macro flow arising from the US debt ceiling deal, persistently weak consumer demand, the impending summer slowdown in business and an intermittent backwardation in London Metal Exchange three-month futures prices are likely to act as drag factors and keep Midwest premiums trading lower for now. Learn more.
Aluminium stocks have seen a significant jump recently, with multiple large inflows of material into warehouses in Gwangyang, South Korea and Port Klang, Malaysia. On-warrant stocks for aluminium have almost doubled so far in 2023, rising from 201,350 tonnes on January 3 to 386,075 tonnes on June 1. But aluminium stocks also remain significantly lower than historical norms, with total stock levels at just over half a million tonnes, with more than 33% of units in LME warehouses cancelled and waiting for delivery out. Total stock levels have not been above one million tonnes since November 2021 and exceeded two million tonnes in 2017.
As the market grapples with the fine balance between tight supply and weak demand, aluminium premiums have mostly remained supported by concerns over the availability of supply. Learn more.
Demand from some end-user sectors such as construction remains tepid amid the ongoing high-inflation environment and poor economic conditions in Europe.
An expected increase in demand for aluminium billet has failed to materialize because of weakness in end-user sectors, with some sellers responding by revising their offer prices downward for spot tonnages and third-quarter negotiations. Billet premiums stabilized earlier this year during second-quarter price negotiations, following a sustained downward trend in 2022 which saw billet premiums tumble from record highs. Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp Italy (Brescia region), at $540-590 per tonne on June 2, down from $540-600 per tonne a week ago, marking the first decline since March, compared with $650-700 per tonne at the start of the year.
The European Automotive Manufacturers Association (ACEA) reported a significant 28.8% increase in EU passenger car registrations in March, to 1,087,939 units. This was the first time since June 2021 that the figure has gone above the 1 million mark. Despite improvements in the automotive sector, with a recent uptick in production volumes, this was not enough to make up for the sluggish construction sector. The automotive sector was also having to make up for the weaker performance of the packaging sector. Learn more.
We maintain our bearish stance in the coming months as long as the light metal trades remain below January 2023 high. In fact, we prefer to stick with the prevailing downward trend that has started during the March 2022 high selloff and it will take a positive break above the January 2023 high to change our overall bias on the light metal.
Lastly, with Germany now entering into a recession following a period of high inflation, it is unlikely that consumers would be keen to take on additional tonnages in the coming months. But consumer stocks remained low for many, and if demand for billet were to return strongly, premiums could become volatile moving forward. Learn more.
To understand the complex market conditions influencing price volatility, download our monthly base metals price forecast, including the latest aluminium price forecasts.