While metals such as copper have had a rollercoaster ride over the past few months Aluminium has been relatively calm. This can be seen in the evolution of the forward curves of these two metals over the past 3 months. Aluminium is particularly striking as the forward curve last week, compared to three months ago has essentially remained unchanged, whereas copper prices have rallied right along the forward curve.
Aluminium’s stability can, in part, be attributed to the high level of LME inventory which has acted as a buffer, dampening price movements in spite of sharp gains elsewhere. However, the physical market is now starting to show signs of picking up.
Headline LME inventories are still incredibly high, at well over 4.55 million tonnes, however, cancelled warrants have started to pick up again - currently standing at over 125,000 mt, or 2.7% of total inventories - while headline inventories are also declining as this material is removed from warehouse.
Nevertheless, premiums for metal, particularly in Southern Europe remain anomalously high, with recent reports putting them at $145/mt. The high premiums reflect a combination of increased demand from consumers, the lack of readily available LME material due to warehousing deals, and also the impact of generally reduced availability in the region after significant tonnages of Russian material (usually sold into Europe), were picked up by a merchant earlier in the year.
If physical demand continues to gather pace, this should support nearby prices, tightening the nearby spreads. The question then becomes whether this is enough to see rent deals start to be broken/not renewed, or whether merchants step in to benefit from the premiums, keeping LME material in warehouse. Either way, the Aluminium forward curve looks set to be a bit more interesting over the next few months than it has been recently.
Courtesy: Commodities Research, Standard Bank
