Price movement recap
While on the 30th October the price of aluminium was USD 1820.5, the latter kept increasing to reach on the 20th November 2020 its highest since the beginning of the year, meaning even before COVID-19.
This high price is mainly due to a destocking effect following the increasing demand of China. The Chinese government is willing to considerably develop its infrastructures as it is part of its “Made in China 2025” project and relies heavily on aluminium. China’s economy has rebounded from COVID-19, particularly due to government spending.
Forward curve
The market is showing a slight contango until November 2021 due to the decrease in inventory level. However, the market is not confident, any sudden change in supply or demand will make the market shift. We can see that the later the delivery date is the more fluctuations there are in the price. After going from some shift between contango and backwardation, the market is seen as being well-supplied from mid-2022.
Supply and demand dynamic
At the beginning of the month, the US market has been looking closely at the national elections as the outcome of the election is very likely to impact the recent Section 232 aluminium tariffs imposed by the Trump Administration. The election process and the refusal of Mr. Trump to recognize its defeat has been creating uncertainty and difficulty to plan. Nevertheless, the real impact on the US aluminium market will not be immediate. As a matter of fact, the Biden administration will not be able to completely remove the tariffs and smoothing the tariffs will take time.
In addition, the announcement of a possible vaccine for the COVID-19 which would re-boost transportation industries as well as the positive macro environment of China as said above leads to a demand optimism in 2022.
Inventory levels
As we can observe, since the middle of July, there has been a constant decrease in the stock. This might be caused by the importation of China of Aluminium, in August and September, they reached the second-highest importation volumes for 11 years. This is the direct consequence of the decrease of stock on SHFE where the price is even higher than on LME. China is consuming almost all its production. As a result, the price of LME is still increasing.
Recommendations
Because of the decrease of inventory and the slight contango, we recommend to secure the supply and to remain long for the next couple of months.
With a possible vaccine on the horizon, we could potentially see an increase in demand in industries such as the automobile and other transportations worldwide.
Beatriz Ferreira Caetano, Virginie Gruaz and Mingxin Ma
References
Aluminum Futures Quotes – CME Group, [no date]. [online]. [Viewed 23 November 2020]. Available from: https://www.cmegroup.com/trading/metals/base/aluminum_quotes_globex.html
Apparent aluminum deficit drives up spot prices against longer dates | MineralPrices.com Breaking news source for precious, battery, platinum group, base, iron and steel, minor, rare earths, quotes and research from various qualified sources., [no date]. [online]. [Viewed 23 November 2020]. Available from: https://mineralprices.com/apparent-aluminum-deficit-drives-up-spot-prices-against-longer-dates/
China reverts to net aluminium exporter in Sept; imports remain strong | MineralPrices.com Breaking news source for precious, battery, platinum group, base, iron and steel, minor, rare earths, quotes and research from various qualified sources., 2020. MineralPrices.com [online]. [Viewed 23 November 2020]. Available from: https://mineralprices.com/china-reverts-to-net-aluminium-exporter-in-sept-imports-remain-strong/
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London Metal Exchange: LME Aluminium, [no date]. [online]. [Viewed 23 November 2020]. Available from: https://www.lme.com/en-GB/Metals/Non-ferrous/Aluminium#tabIndex=2
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NIRMAL, Rajalakshmi, [no date]. China’s growing demand for metals stokes prices. @businessline [online]. [Viewed 23 November 2020]. Available from: https://www.thehindubusinessline.com/markets/commodities/chinas-growing-demand-for-metals-stokes-prices/article33162660.ece
SMM Morning Comments (Nov 23): Shanghai base metals were mostly higher as investors watch for coronavirus developments_SMM | Shanghai Nonferrous Metals, [no date]. [online]. [Viewed 23 November 2020]. Available from: https://news.metal.com/newscontent/101324136/smm-morning-comments-nov-23-shanghai-base-metals-were-mostly-higher-as-investors-watch-for-coronavirus-developments
US presidential election result expected to drive direction of US aluminium premium | Metal Bulletin.com, [no date]. [online]. [Viewed 23 November 2020]. Available from: https://www.metalbulletin.com/Article/3960406/US-presidential-election-result-expected-to-drive-direction-of-US-aluminium-premium.html