Aluminium
The Struggle is Real
January 2020
The US administration is planning to impose tariffs on aluminium from Brazil and Argentina, two countries which had previously been successful in negotiating a permanent exemption after the sweeping tariffs were first implemented in March 2018.

Both countries had already agreed to cap shipments but have now been accused of currency manipulation leading to the sudden declaration to impose the tariffs. In addition to the devaluation of both the Brazilian and Argentine currencies against the US Dollar, both countries have become alternate suppliers of soybeans and other agricultural products to China since the US embarked on its trade war with the country. It has been suggested the move, which is yet to be officially implemented, may be in retaliation to the impact this alternate trade is having on US farmers in the lead up to the 2020 election.

The European aluminium price has averaged US$1,766/t (US80.1¢/lb) through December, unmoved from the November average. A very marginal rally to over US$1,800/t (81.7¢/lb) quickly retreated to US$1750/t (US79.4¢/lb) where it has remained. The Asian regional aluminium price followed a similar trajectory with a brief increase and subsequent fall, also averaging US$1,7668/t (US80.1¢/lb) and also currently stuck around US$1,750/t. The agreement made in principle to resolve some components of the trade conflict between China and the US has not translated to any sustained positive price movement.

LME primary aluminium stocks have continued increasing, up a further 13.4% from Novembers close in mid-December, adding 170kt to be at ~1.44Mt. This equates to end-of-month stock cover by LME warehouses of nearly 8.0 days. The increased stock level remains focussed in Malaysian warehouses and represents a potential shift from an extended period of marginal stock movements at the end of a period of long-term decline from the record inventory levels during the GFC.

Over 35% of London Metal Exchange (LME) aluminium stock is stored in Malaysian warehouses owned by ISTIM UK. According to LME warehouse reports, aluminium stocks totalling 476.9kt were stored in ISTI's Johor and Port Klang warehouses at the end of November. This month alone it increased stored volume by a 213.3kt. Total LME stocks are reportedly 1.27Mt. ISTIM's business model is believed to be based on warehouse queues and the rents associated with storing metal. Five years ago, the LME implemented rules to lower wait times for stored metal and keeping the cost of warehoused material in check. the LME is currently looking at revising these rules.

Alumina prices remain relatively low and the market has been in apparent surplus since the return of the 6.4Mtpa Alunorte refinery to full production. Indian producer Nalco is looking to return to selling alumina on long-term contracts should favourable conditions be reached, to lock in price certainty, a shift from the more recent transition across the industry to spot prices. The Australia FOB alumina price has eased slightly, averaging US$278/t to date in December, down 1.9% from the November average. The domestic China price has also declined to date, down by 3.3%, to average US$355/t in December.