LME Aluminum to avg $1,850 a ton in Q2: Barclays

British banking giant Barclays believed that the LME aluminum prices are expected to average $1,850 a ton in second quarter of this year.

First quarter LME aluminum prices were slightly below expected, averaging $1,708 a ton versus Barclays forecast of $1,750 a ton.

Barclays maintain their aluminum's rest-of-year forecast with the fundamental picture unchanged from when they set this price deck at the beginning of the year.

That said, this is based on the premise that physical premiums moderate lower as the year progresses.

“We believe that eventually the additional LME warehouse load-out rates will be implemented and material will flow out of LME warehouses quicker than it does currently. However, there are many hurdles, and in the meantime, premiums are likely to remain supported, especially since the market outside China is in deficit. Importantly for fundamentals, the latest LME development does not seem to have affected producers’ plans to curtail capacity, with Alcoa announcing the closure of 147Kty in Brazil the day after the LME announcement,” analysts with Barclays added.

The renewed state of flux in LME rules may limit financing appetite, as in Q3 13, in turn supporting a softening in aluminium time spreads. The outlook for aluminium physical premiums is also now more balanced, though it will still depend on LME delivery queue length.

Should it be decided that banning or capping rent charged by warehouses during the delivery queue period will be implemented, for any given queue length, lower rents should lower the cost of taking delivery of LME units which, in theory, would be bearish for premiums.

However, in the short term, premiums would be supported by a surge in warrant cancellations since there would be an incentive to be in the queue because rents would be lower.