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The issue of surplus haunts aluminium again
Edited by : AL CIRCLE
2 min read
The issue of surplus has come back to haunt aluminium again taking a toll on bullish projections.
Following September’s QE- and positioning-fuelled rally, retracement over the past month has taken LME aluminium prices back down towards the $1,900/t level. This move lower has been more than justified by a continued deterioration in the quality of underlying market fundamentals.
"Our projected market surpluses have expanded again, to 1.2Mt for 2012 and 1.5Mt for 2013, both increases of close to 100Kt, reflecting the impact of generally weaker-than-projected Chinese demand in September." Barclays said in a report.
Set against robust production growth in China during the month (up 6% y/y to 20.3Mty), domestic visible inventories have now risen to 1Mt, representing a 500Kt rise since the beginning of the year. We expect pressure on prices to remain in place and likely re-test the year’s lows.
Some attention was given to recent comments that China’s NDRC wants to curb the pace of smelter capacity expansion in Xinjiang province. As a source of close to 6Mty of new capacity by 2015, this is an issue worth monitoring.
However, we are sceptical that new low-cost capacity is where constraints will be enforced. Moreover, given that power tariff discounts in several provinces are expected to remain in place into next year and that there has been press speculation about new stockpiling measures in China, we believe overall government policy remains accommodative of the smelting sector and indicative of continued oversupply into 2013.
Discussions at LME Week largely reinforced our view that fundamentals are set to remain soft on a 12-month horizon.
No producers offered indications of imminent cuts, with some having hedged in September to lock in profitable forward prices alongside current premia. Financing was also expected to continue into 2013.
Moreover, in a week of low conviction with regard to the complex, the fund community expressed overwhelmingly bearish sentiment toward the metal and the conviction to position for such a move in prices.
Following September’s QE- and positioning-fuelled rally, retracement over the past month has taken LME aluminium prices back down towards the $1,900/t level. This move lower has been more than justified by a continued deterioration in the quality of underlying market fundamentals.
"Our projected market surpluses have expanded again, to 1.2Mt for 2012 and 1.5Mt for 2013, both increases of close to 100Kt, reflecting the impact of generally weaker-than-projected Chinese demand in September." Barclays said in a report.
Set against robust production growth in China during the month (up 6% y/y to 20.3Mty), domestic visible inventories have now risen to 1Mt, representing a 500Kt rise since the beginning of the year. We expect pressure on prices to remain in place and likely re-test the year’s lows.
Some attention was given to recent comments that China’s NDRC wants to curb the pace of smelter capacity expansion in Xinjiang province. As a source of close to 6Mty of new capacity by 2015, this is an issue worth monitoring.
However, we are sceptical that new low-cost capacity is where constraints will be enforced. Moreover, given that power tariff discounts in several provinces are expected to remain in place into next year and that there has been press speculation about new stockpiling measures in China, we believe overall government policy remains accommodative of the smelting sector and indicative of continued oversupply into 2013.
Discussions at LME Week largely reinforced our view that fundamentals are set to remain soft on a 12-month horizon.
No producers offered indications of imminent cuts, with some having hedged in September to lock in profitable forward prices alongside current premia. Financing was also expected to continue into 2013.
Moreover, in a week of low conviction with regard to the complex, the fund community expressed overwhelmingly bearish sentiment toward the metal and the conviction to position for such a move in prices.
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