Aluminium prices continue to fall

Over Metal mining

The Monthly Aluminium Metal Index (MMI) The decline continued and amounted to 5.14% from July to August.

The Price of aluminum The price continued to fall before reaching its lowest point in late July. Overall, aluminum prices recorded a decline of 9.07% during the month, followed by a modest increase of 2.26% in the first half of August.

High Chinese aluminum supply poses pessimistic risk

Aluminium prices appeared to stabilise in August, although downside risks remain. Global inventories remain relatively well-filled. While LME inventories have continued to decline in recent months, their total volume remains close to multi-year highs.

Meanwhile, market contango, with LME futures continuing to trade at a historically high premium to spot prices, suggests there are no supply constraints in the spot market. In fact, the delta between the two price points has increased to around $55/mt in the first half of Q3. (To learn how to navigate the price changes in aluminum, read our free resource The art of finding the right time to buy your metal).
In the second quarter, the average was only USD 44/mt. By comparison, futures have averaged a premium of USD 22/mt over original cash since 2012.

Source: MetalMiner InsightsChart and correlation analysis tool

Despite increased protectionist measures in the West, Chinese overcapacity continued to dominate the global supply landscape. According to the International Aluminum Institute, primary aluminum production in China continued to rise compared to previous years, with the first half of 2024 seeing an increase of more than 5% compared to the first half of 2023.

China's production stable in 2024, but global supply remains unscathed

While the dry season in China earlier in the year led to a slight decline in production, monthly volumes continued to exceed previous years' totals. However, production in China's water-rich Yunnan province remains weather-dependent. However, with no drought in 2024, production cuts proved relatively modest and too limited to have a significant impact on global supply.

Source: MetalMiner Insights

China's exports are falling, the economy is disappointing

As the West moves toward protectionism, China's ongoing economic weakness continues to push much of its aluminum supply onto the global market. U.S. tariffs have so far done little to curb import volumes from China, which surged in the first half of 2024. China remains America's third-largest metals supplier, surpassed only by the United Arab Emirates and Canada.

China has little choice but to rely on the export market. While the country continues to build out its renewable energy and electric vehicle infrastructure at a rapid pace, the ongoing decline of its real estate sector continues to limit demand for downstream products that require aluminum.

Meanwhile, Chinese consumers remain cautious about spending amid economic uncertainty. To maintain its GDP growth, China must therefore look elsewhere for demand. This has led to Record volumes Cargo shipments from China to the US and Europe. Although some believe that the reversal of US interest rate hikes could give China the opportunity to significantly increase its stimulus measures, this seems unlikely.

Many analysts had also speculated that the conclusion of China's third plenary session in July would also provide stimulus to the economy. But they were then disappointed by a moderate and insignificant interest rate hike that did little to change the economic outlook.

Canada considers tariffs in fight for protective tariffs

China's influence on the global aluminum market extends well beyond the United States, as China's comparatively low prices continue to provide a competitive advantage. For example, Canada's aluminum and steel industries have begun to put increasing pressure on the government to follow the example of the United States and Mexico in raising tariffs.

Industry leaders noted “existential threat” Canada should not block Chinese supplies. As the leading supplier of aluminum to the United States, what happens in Canada inevitably has an impact on the domestic market. This has led to calls for Canada to impose a 25% tariff on steel and aluminum products smelted and cast in China.

Increased tariffs, particularly from Canada, could help mitigate the impact of China's overcapacity on Western markets. However, it is worth noting that China will likely look for loopholes to maintain export demand. These monthly aluminum macroeconomic market indicators are all published monthly in MetalMiner's free Monthly metal index report.

Mutual funds are giving up long positions and increasing their short positions

China's role continues to leave a pessimistic aftertaste in markets like aluminum. Even taking into account the recent price increase, the end of the speculative rally in the second quarter has recently pushed prices back into their sideways range for 2023 as markets continue to reassess their demand forecasts.

While a sharp increase in mutual fund long positions fueled last quarter's rally, their positioning today stands in stark contrast to that of just a few months ago. Funds have not only abandoned almost all of the long bets accumulated over the past few months, but have also begun piling on short bets, almost eliminating the net long bias that materialized in mid-March.

The positioning of mutual funds remains an important factor when it comes to the price of aluminum and its evolution. This is mainly due to their outsized positions compared to those of other investors. The change in their current sentiment suggests that they have given up expectations of a short-term recovery, making it difficult for the price of aluminum to rise significantly from its current level.

By Nichole Bastin

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