LME aluminum prices
LME (London Metal Exchange) aluminum prices were trading at $1,900 per metric ton on May 6. This is the highest level for aluminum prices since December 12, 2014. Aluminum prices were strong for most of last year. However, prices corrected sharply toward the latter part of the year. Prices of all metals like steel, copper, and aluminum fell as crude oil prices touched multi-year lows. Still, aluminum managed to end 2014 with a gain of ~4% on the LME.
The above chart shows the recent trend in spot LME aluminum prices. As you can see, prices increased sharply in the last couple of weeks. Aluminum gained ~9% in April. Copper and iron ore also gained in April.
Aluminum prices have moved back into contango. When future prices are higher than current spot prices, it’s referred to as contango. Prices in contango are generally viewed as a positive sign.
Aluminum prices directly impact revenues of aluminum producers like Vale S.A (VALE), Glencore plc (GLNCY), and Noranda Aluminum (NOR). According to Alcoa, its earnings go down by $190 million for every $100 per metric ton fall in aluminum prices. The converse holds true when aluminum prices go up.
Alcoa prices aluminum from its primary segment with a 15-day lag to aluminum prices. Century Aluminum (CENX) prices aluminum with a one-month lag to LME prices. CENX currently forms 3.18% of the SPDR S&P Metals and Mining ETF (XME).
Higher LME aluminum prices are positive for aluminum producers. However, even the sharp increase in LME aluminum prices has failed to cheer investors. We’ll look at the reason for that in detail in the next part.