Aluminium June 2017
Sourcing difficulties of suitable bauxite

Total LME stockpiles dropped a further 10% in May to to reach a 9-year-low position of 1.47Mt. LME spot aluminium prices maintained the same range from March-May. Bauxite has seen some domestic price pressure within China as grades have fallen rapidly.

LME aluminium spot prices averaged US$1,913/t (US$0.87/lb) in May against a three month average price of US$1,911/t. Prices ranged between US$1,860/t and US$1,958/t, with a close of 1,926/t. The average Midwest aluminium premium fell from an April close of US$0.096/lb to US$0.088/lb at the end of May.

Combined exchange stocks (LME and SHFE) fell by 7.3% to 1.89Mt in May, this being the net change from a 5.6% increase in SHFE and a fall of 10.4% in LME warehouse stocks. By the end of the month, the LME stocks continued their 9-year-low position at 1.47Mt, aided by a 13% (98kt) drop in Asian LME warehouse stocks and a further decline of 56kt in the European warehouses.

Investor activity remained cautious. The net long non-commercial position on LME maintained a stable level with a monthly increase of only 0.4% to 4,243,850 tonnes in May. The size of both long and short positions showed little change month-on-month. The low SHFE price and the net gain in SHFE inventory of over 300% in the first five months of 2017 may indicate lacklustre demand side balanced by the China’s supply side capacity constraint notices.

With alumina prices falling into May where they have since stabilised, it may be expected that underlying pricing pressure on aluminium will reduce in the coming month. A related fall in aluminium price has not yet materialised, and if it occurs may last until the reduced alumina production volumes begin to balance demand and alumina price recovers.

Bauxite, as the raw material in alumina production, has seen some domestic price pressure within China as grades have fallen rapidly. Sourcing difficulties of suitable bauxite throughout May has continued in the previously important bauxite producing provinces such as Shanxi. Environmental inspections have been linked to some mine curtailments, but quality issues have also been a factor.