November aluminium price forecast by SMM: Alcoa, LME round-up and impact

Aluminium prices inched higher last week boosted by Alcoa‘s production declines. Physical premiums too improved slightly driven by the recent short-term price movements.

However, there is even more to look at for those investing in firms like Alcoa, Rio Tinto Group and Norsk Hydro – notably, the London Metal Exchange‘s aluminium inventories, says Shanghai Metals Market.

In short, LME’s aluminium inventory has been steadily dropping after reaching about 5.5 million metric tons (mt) in mid-2013. According to Market Realist, that drop was compounded in October with aluminium inventory at LME warehouses down 138,900 mt.

As of this week, LME warehouses recorded a total aluminium inventory of 3.03 million mt, according to the news source, of which nearly 36% is from cancelled warrants. All the metal that enters LME warehouses is on warrant and these warrants are cancelled when the bearer requests the physical delivery of the metal. From late October through November 2, cancelled warrants grew by more than 23% despite total aluminium inventory with LME warehouses decreasing over the same period.

Leon Westgate, an analyst at ICBC Standard Bank, said: “The increase in cancelled warrants is unlikely to be related to real demand. With the large tonnages like that, it’s likely to be finance-related. It’s likely to be material moving to an ex-LME location.”

He further observed, Alcoa’s cuts and the situation with LME warehouses could impact Midwest aluminium premiums, but they won’t likely have a long-term impact on aluminium prices due in part to a strong dollar and the significant amount of aluminium leaving China.