LME aluminium shows resilience in September

The London Metal Exchange cash and three-month aluminium contracts are showing sign of improvement in the month of September. LME 3M contracts closed at $1,664 per metric ton on September 27 while LME cash contracts closed at $1,648 per metric ton. The graph shows significant gains in the month of September.

Three months aluminium has gained 10.2% so far since the beginning of 2016. In the month of September itself it recorded a 2.9% increase. Aluminium prices have shown resilience this year. However, aluminium prices are moving within a range of $1,600 to $1,700 per metric ton.

At the beginning of the year, aluminium’s sentiment was negative. Global aluminium markets were under the overhang of a decade of surplus. All major aluminium producers ex-China started cutting unprofitable capacity to give support to LME prices and premiums and to survive the volatile market. The US especially has closed down a large portion of its primary capacity. The current capacity of the US domestic primary aluminium industry is less than 25% of the original capacity. While the world was in a deficit for a while, higher Chinese production and the resulting exports continued to keep the market into a surplus.

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Fortunately, Chinese aluminium exports have started falling in 2016. China’s total aluminium exports have fallen 4% year-over-year in the first eight months of 2016. However, Chinese aluminium exports have risen on a month-over-month basis for two consecutive months.

Market experts are concerned that Chinese producers may resume a number of idled capacities if the LME price bounces back. This might again put the market back to surplus.  However, the Fed’s decision to hold the benchmark rates steady was received well in the metal market including aluminium. This is one reason for the LME price to show resilience currently.