Rusal uncertainty continues to stifle liquidity
The sanctions imposed by the United States against Russian aluminium producer UC Rusal were the main talking point at the conference, with uncertainty about the situation dividing opinion.

More than half the delegates polled during panel discussions at the conference thought that the sanctions on Rusal would be lifted some time in 2019. But traders admitted that the lack of liquidity in the market was due to the uncertainty about whether the sanctions would be lifted before October 23 this year. This is the deadline date for US companies to end their dealings with the Russian company.

“People do not want to lose out and do the wrong trade. If the sanctions are lifted, or remain in place, the market could be a very different place,” a trader added.

If the sanctions against Rusal are lifted, traders expect the Rotterdam duty-unpaid premium for P1020A-grade aluminium, in-warehouse, to fall to around $70 per tonne. If the sanctions remain in place, the premium is expected to rally up to or even higher than $140 per tonne.

The Rotterdam duty-unpaid premium was most recently assessed at $85-95 on Wednesday September 19. At the height of the Rusal uncertainty in April, it hit a high of $150-165 per tonne.

Forward contracts are trading flat
Sellers told Metal Bulletin that getting higher premiums above the current spot premiums was proving difficult.

Deals heard for 2019 premiums in Rotterdam on both a duty-paid and duty-unpaid basis were reported flat compared with current levels.

But market participants expected premiums to be higher in the long-term, with buyers scrambling for supply in case the US government decides not to lift its sanctions on Rusal.

Alumina under spotlight
The high cost of raw materials was another key talking point at the conference, with the tightness in the alumina industry worrying many aluminium traders.

During the conference, alumina was selling for more than $600 per tonne and at more than 30% of the London Metal Exchange price, causing many smelters to lose money.

Overall, analysts noted that there was a more bearish picture ahead for the alumina market, with capacity expected to come back online in 2019.

Norsk Hydro’s Alunorte refinery in Brazil is expected to restart by the end of this year, following recent agreements signed between the company and state authorities, while the current strike by Alcoa workers in Australia is also expected to be resolved.

Market shocked by LME price divergence
The high alumina price was ignored on the LME, and the price divergence caught the eye of the market.

Market participants noted that the exchange prices had the “perfect cocktail” of ingredients with which to rally in recent months, but the lack of reaction showed that they have become too strongly driven by macro-economic factors.

Analysts remain bullish for 2019
Aluminium prices have a bullish base from which to climb steadily higher throughout 2019, no matter what happens with the US sanctions on Rusal, market analysts said.

For the rest of 2018, Robin Bhar, head of metals research at Société Générale, forecasts an average outright aluminium price of $2,150 per tonne.

Metal Bulletin analyst Yang Cao agreed that aluminium prices will stay high in 2019, forecasting an average price of $2,200 per tonne for next year.

Dialogue is key to resolving China overcapacity, not tariffs
A global dialogue intended to resolve the issue of overcapacity in China’s aluminium production would be better for creating a fair global market than the imposition of tariffs, a panel of industry experts said.

Panellists noted that the Section 232 tariffs - imposed in June by the US on aluminium imports from Canada, Mexico and the EU - had had little effect on Chinese supplies.

Worries of trade war persist
Another major source of concern for the aluminium market was the persistent worry over a possible trade war between the US and China, and the implementation of multiple tariffs.

“The trade war issue continues to have a big effect on the LME three-month price, and everybody knows that [US President Donald] Trump could do anything next,” a European-trader said.

The market remained cautious about any changes in the rest of this year and throughout 2019.

Market remains tight, with or without Rusal
Even if the sanctions on Rusal are lifted, traders noted that the market was still short of supplies of metal for next year.

Aluminium products such as slab, foundry and billet are increasingly difficult to buy, with producers saying that they are currently sold out.

With on-warrant stock levels on the LME at their lowest since 2007, at less than 800,000 tonnes, traders were also worried about the steep decline in off-exchange stocks.

Estimates of the possible volumes of off-exchange aluminium stocks were heard anywhere between 2.25 million and 5 million tonnes, much lower than the 6.5 million tonnes assessed after last year’s aluminium conference.

“The number is unclear but everyone agrees on one thing, which is that the off-exchange stocks are dramatically lower and are continuing to fall,” a market source said. “We are in a deficit market.”