Markets Easing but Tension Remains
November 2018
In October, the aluminium price declined 5.3% to US$1,943/t (US88.1¢/lb). This is below the level seen prior to Rusal sanctions, US import tariffs and alumina supply concerns unsettled the market earlier in the year. Price declines are linked to concern over US-China trade tensions generating a general slowdown in commodity markets as traders take a more cautious approach. Prices outside China averaged US$2,031/t (US92.1¢/lb), relatively steady month on month.

A short aluminium price spike at the very start of October was predicated on alumina supply fears created by the announced full curtailment of the Alunorte refinery. However, the aluminium price declined 5.3% over the whole month. The announced plans to curtail Alunorte on residue disposal concerns, which would have drastically increased smelter alumina feed costs, quickly shifted following permission being granted to operate newly installed dewatering equipment at the site. This tempered alumina supply concerns and saw the aluminium price quickly revert to pre-announcement levels. Progress towards reconciling prevailing concerns—sanctions and alumina supply—has seen the price continue to ease. Increasing trade tension between the US and China is expected to see growth rates moderate slowing demand and consequently price.

LME stocks increased slightly over October, increasing ~60kt to close the month at ~1.05Mt. The visible stock cover of LME warehouses is 5.7 days. SHFE aluminium deliverable stocks declined for the fourth consecutive month posting a ~30kt drawdown in September to close at 0.80Mt. The continued de-stocking indicates a market deficient. Unusually, prices are also easing despite the tightened metal supply environment.

The Australia FOB alumina price averaged US$517/t over October, down 14.7% month on month. The alumina market remained volatile and in tight supply as Alunorte’s 50% curtailment was maintained. Plans to fully curtail the 6.4Mtpa refinery—the largest in the world—saw a dramatic increase in spot prices before easing following Norsk Hydro’s announcement that it had necessary approvals to continue operations at 50% capacity. Late in October, Brazil’s environmental agency, IBAMA, suspended an embargo on Alunorte’s use of its new residue disposal area removing a roadblock to resuming full production. A federal embargo remains in place with no announced timeline for its lifting and potential return to full production.

While both aluminium and alumina prices appear to be easing, uncertainty in both markets are creating price upside potential. Should the compliance deadline for Rusal be realised—currently set for December—it may prove difficult to compensate the supply deficit in the short term. Additionally, the planned winter curtailments in China are not expected to be as severe as last year, with greater discretion left to local authorities, leaving the resultant supply impact as a relative unknown.