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1) Bullish outlook for the aluminium price The vast majority of market participants present in Bahrain forecast higher aluminium prices in the months ahead. Metal Bulletin Research forecast an LME cash price of $2,090 per tonne on average in 2018 and up to $2,195 per tonne if a bullish scenario materialised, up from this year $1,945 per tonne. Others agreed with averages in a range of $2,000-2,200 per tonne next year, with a few banks and trading companies seeing a price rally up to $2,400-2,500 per tonne at some stage. The LME cash price was recently at $2,107 per tonne. The bullish outlook is based on tightening fundamentals, with the global aluminium market seen in a deficit of 700-850,000 tonnes next year, according to various analysts. Metal Bulletin Research sees demand growing by 4-5%, led by the auto sector, and supply growth slowing to 2.2% amid supply cuts in China.
2) Will China really cut supply during the winter, and for good? China has announced supply cuts of 30% between November 2017 and March 2018, equivalent to at least 1.2 million tonnes of legal capacities, in addition to illegal capacity cuts. There were mixed views on whether China would actually implement the cutbacks, and indeed producers argued that with a deficit forecast next year, the world market needs China’s exports. But most market participants anticipated that China would follow through with the planned cuts and would not restart these capacities for some time, on the basis of high costs and anti-pollution requirements. Some of the illegal capacities will apply to become legal, but this process is expected to take time. 3) Off-warrant stocks have fallen Off-warrant stocks of aluminium, which have long been a dampener when it comes to the impact of expected supply/demand deficits, appear to be falling according to some market players in Bahrain. Stocks outside China are now assessed at around 6.5 million tonnes, including just 1.3-1.5 million tonnes in northern Europe. 4) Much greater focus on tightening raw material supply There was an increased focus on raw materials at this year’s conference amid concerns over the supply of bauxite, alumina and carbon anodes. China’s winter supply cuts will also affect 30% of its alumina production and 30% of its calcining and anode baking capacities, with more facilities also ordered to shut down on environmental grounds. This will affect China’s exports of carbon anodes and pet cokes to western aluminium smelters and potentially provide a cap on restarts and start-ups of new aluminium capacities in 2018. Tar, pitch, calcined coke and anode prices have also experienced a dramatic surge in price since mid-2016, when China began its environmental inspections. This is increasing costs of raw materials for smelters in the rest of the world, including the West, Malaysia, India and the Middle East. Market participants also noted that bauxite shortages in northern China, the winter cuts and strong demand growth of around 4% per year were contributing to higher alumina prices. 5) Section 232 unlikely to include primary aluminium because it would harm US buyers There were a lot of talks about the potential outcome of the Section 232 investigations by the US Commerce Department, due to be released by January 2018. Most market participants do not expect the US to impose import duties on primary aluminium, including P1020 and products such as billet and foundry alloy ingots, because the US is a deficit market, having lost 67% of its primary production since 2000. Any duties would simply be passed on to US buyers via higher metal premiums rather than prompt lower exports, according to most in Bahrain. It is unlikely that new smelters will be built in the US, but, should prices continue to rise, restarts of aluminium smelters in the US are possible. 6) Concerns over South Korean stocks amid heightened geopolitical tensions Several banks are pulling out of financing stocks of aluminium and copper in South Korea, sources with direct knowledge of the matter have told Metal Bulletin. The prospect of war in the region has made the financing of metal too risky from a compliance perspective, with basic insurance not able to cover “acts of war” or “terrorism,” a banking source said. Some of the world’s leading banks for metal financing have come under pressure to unwind positions, particularly on the large amounts of aluminium stored off-warrant in the region, and they are simply not rolling any existing deals, Metal Bulletin understands. 7) US Midwest premium has upside potential, but not all are convinced Much of the market is under the impression there is large upside potential in the US Midwest premium for P1020 aluminium, with some forecasting as much as 12-13 cents per pound over the LME price. Metal Bulletin’s latest assessment of the P1020 premium delivered to the Midwest was at 9.1-9.25 cents per lb this week, the first time the premium has moved into 9-cent territory since May and up 30% since July and around 50% since the same time last year. Premiums are rising due to increasing freight rates, which are said to be up by about 1 cent per lb according to some sources. Still, not all are convinced — one trader told Metal Bulletin he had been offering similar numbers to last year’s annual fixed premium negotiations, with very little take-up so far. Customers have spoken of no availability complications and no expectations of any, either, despite the US being a natural deficit market and with freight rates increasing all around the world.
8) New CETA agreement unlikely to impact European premiums, but purity metal is coming to Europe from Canada The EU-Canada Comprehensive Economic and Trade Agreement (CETA), which lowers customs tariffs between the EU and Canada and began provisionally on Thursday September 21, is expected to have little effect on the physical European aluminium market in the near term. The start of CETA allows fresh Canada-produced aluminium metal to be imported into Europe on a duty-free basis, lifting the EU’s tariff of 3% of the all-in price of aluminium: the London Metal Exchange cash price plus the duty-unpaid premium. Still, some sources at the conference said that at current rates into the US Midwest from Canada – which have risen sharply due to high inland freight and sea freight rates – metal can be imported into Europe at profit. Still, sources also say that much of this material continues to be P0406 high purity metal and will not impact premiums on standard grade 99.7% P1020 in Europe at this moment.