- Aluminium prices are oscillating sideways in high ground – prices have not suffered as much as many of the other base metals. It would appear weakness in the base metals complex is holding aluminium prices back.
- For now, a series of previous highs between $1,968 per tonne and the late March high at $1,981 are acting as key resistance guarding the $2,000 per tonne level.
- Our long-held view is for prices to challenge the highs and move on to challenge supply at 2,000-$2,120 per tonne at some point. We wait to see if today’s uptick attracts follow-through buying.
London Metal Exchange stocks continue to trend lower but SHFE stocks continue to rise. China may be building up stocks ahead of this winter’s planned cuts.
Cash/June-date spread remains tight; it was recently quoted at $4.37-5 per tonne backwardation. The cash/three-month spread is tight at $4-2 per tonne contango.
Nearby-dated metal remains in concentrated hands: one entity now holds 40-49% of the warrants and a similar-sized tom and cash position, hence the tightness in the spread.
The physical market has slowed, with premiums edging lower in the USA due to the surge in imports. That is leading to weaker premiums elsewhere as there is less demand to export to the USA, at least for now. The nearby backwardation is also increasing availability as stockists prefer to sell metal rather than finance stocks.
Aluminium prices have generally held up better than the rest of the complex. Once, or if, sentiment picks up again, which it may do considering the better Chinese trade data for May, we would expect the earlier firmer tone in aluminium prices to return. Aluminium’s engine is running but the brakes are on.