Via AG Metal Miner
After substantial declines throughout September, this month’s aluminum prices appear strong compared to other metals. Aluminum prices hit a bottom in late September, but rebounded during the first week of October. Should prices continue to break out of range upward, it would indicate a halt of the downtrend amid building bullish sentiment. Despite the recent bounces, however, the momentum of the long-term macro downtrend will continue to add pressure to the index.
The Aluminum Monthly Metals Index (MMI) dropped 8.04% from September to October, with all components declining.
Global Physical Delivery Premiums in Descent
Global physical delivery premiums continue to slide from their respective peaks. Such premiums remain accurate measurements of primary aluminum supply with respect to demand. Therefore, falling premiums suggest waning demand.
According to a report from Reuters, aluminum buyers in Japan recently agreed to pay a premium of $99 per ton for October through December shipments. This is lower than the initial offers from producers in relation to aluminum prices, which ranged between $115 and $133 per ton. This will mark the fourth consecutive quarter of decline. Indeed, current figures sit 33% beneath the $148 per ton paid between July and September. They are also 55% lower than the $220 per ton peak hit during the fourth quarter of 2021. As Asia’s largest aluminum importer, premiums negotiated by Japan will become the benchmark for the entire region. Lately, Asian demand has appeared more resilient than that of Western Europe. Still, the continued decline of the Japanese Port quarterly premium suggests demand is also falling there.
Meanwhile, the European Duty Unpaid premium peaked later than Japan’s, reaching $505 per ton in May. Nonetheless, that premium has since fallen by 50% and currently stands at over $250 per ton.
The Midwest Premium has also been in decline since late March. After it peaked at over $865 per metric ton, the premium experienced a mostly-steady descent to where it now sits, down 44%. At just over $480 per metric ton, this represents its lowest level since May 2021.
Chinese Production Continues to Buoy Global Supply
As demand appears to soften, global primary aluminum production remains in growth. According to the International Aluminum Institute, August production saw the third consecutive month of increase as global production rose to 5,888,000 metric tons. China alone represented almost 60% of that total. Indeed, continued boosts from China have helped buoy supply as production in regions like Western and Central Europe face increasing constraints.
Beyond Aluminum Prices, Global Manufacturing Looks Increasingly Grim
Meanwhile, global manufacturing paints an increasingly grim picture. In China, COVID restrictions saw the Caixin Manufacturing PMI further entrenched in contractionary territory, falling to 48.1 in September. At 48.4, the Eurozone Manufacturing PMI also marked its seventh consecutive month of decline and third straight month in contraction. Meanwhile, both the U.S. ISM Manufacturing PMI and Japanese Manufacturing PMI remain in growth at 50.9 and 50.8, respectively. September marked the sixth consecutive decline for both Japan and the U.S. as growth continues to slow. Each region saw factory activity pressured downward due to falling demand.
Demand continues to fall due, in part, to increasingly weak manufacturing sectors. Meanwhile, the market is now increasingly oversupplied. The collective impact will likely mean the macro downtrends for both prices and premiums will continue in the coming months. If the U.S. and Japan can maintain growth and China shifts away from its zero-COVID approach, it could add a strong counterbalance to the other bearish trends.
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By The MetalMiner Team
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