LIVE FUTURES REPORT 21/05: SHFE base metals prices mixed; Al dips on Alunorte resumption

Base metals prices on the Shanghai Futures Exchange were on divergent paths during morning trading on Tuesday May 21, with the resumption of operations at the Alunorte refinery in Brazil putting pressure on aluminium prices, while nickel climbed after London Metal Exchange spreads moved into backwardation.

Aluminium was amongst the underperformers on Tuesday morning, with its most-traded July contract descending to 14,230 yuan ($2,062) per tonne, down 55 yuan per tonne from its closing price of 14,285 yuan per tonne on Monday.

The weakness in aluminium arises from concerns over supply increases following the full resumption of operations at Norsk Hydro’s Alunorte plant, the largest alumina refinery in Brazil.

“The aluminium price on the SHFE followed the decline on the LME [on Monday] due to resumption of Alunorte,” an analyst with Guotai Junan Futures said in a morning note on Tuesday.

“Some alumina refineries in China, for example Xinfa Group’s Xiaoyi plant, however, are going through production cuts due to environmental issues, and thus may cap the downtrend in the aluminium price on the SHFE,” the analyst added.

Xinfa Group was reported to have caused serious environmental damage to local communities after a red mud residue leak – caught on camera by CCTV (China Central Television) on May 8 – and was ordered to close its alumina production lines at its Xiaoyi plant on May 9.

Nickel rebounded this morning, ending a string of consecutive declines over the past few days, with the recent backwardation – a sign of spot supply in tightness – being cited as the main reason for the rise.

The LME’s cash/three-month spread recently reached a $20 per tonne backwardation while the June/July spread recently moved out to a $39 per tonne backwardation after a sustained period of contango.

The most-traded July nickel contract stood at 97,960 yuan per tonne as at 9.45am Shanghai time, up by 640 yuan per tonne, or 0.7%, from Monday’s close of 97,330 yuan per tonne.

“The earlier declines in nickel boiled down to muted stainless steel demand and ample supply of nickel pig iron and nickel plates, [but] the recent backwardation in spreads has temporarily reversed the downtrend [in nickel prices],” according to a Shanghai-based analyst.

Other highlights

  • In data on Monday, the German Producer Price Index (PPI) grew by 0.5% in April compared with the prior month, while the euro area’s current account recorded a surplus of €24.7 billion ($27.6 billion) in March, which was down from a surplus of €27.9 billion in February.
  • Data of note scheduled for Tuesday include inflation report hearings and CBI industrial order expectations from the United Kingdom, consumer confidence from the European Union and existing home sales from the United States.
  • In addition, US Federal Open Market Committee members Charles Evans and Eric Rosengren are speaking.