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LME Aluminum Is Trading at 17-Month Low on Weak Macros

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LME aluminum

Spot aluminum was quoted at $1,666 per metric ton on June 17 on the LME (or London Metals Exchange). In our previous series, we discussed how aluminum prices were trading near the psychologically important level of $1,700 per ton and how the possibility of further decline in prices looks dim. Spot aluminum prices did inch upwards a bit, but then negative news from the situation in Greece took its toll on base metals.

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Metals meltdown

Aluminum has lost ~3% in the last couple of trading sessions. Copper prices have also been weak. On June 17, copper prices were trading at $5,749 per metric ton in the spot market, having lost ~$600 per ton in the last month.

However, iron ore prices have shown resilience amid reports that major suppliers like BHP Billiton (BHP) and Vale (VALE) might curtail some of their planned expansion.

Prices in downtrend

The previous chart shows the trend in spot LME aluminum prices. As you can see, prices have been in a downtrend for more than a month now. The revenues of aluminum producers like Alcoa (AA) and South32 (SOUHY) are tied to the LME aluminum prices. Decline in aluminum prices is bound to hit the earnings of these companies.

Alcoa, for instance, estimates its net earnings fall by $190 million for every $100 per ton fall in aluminum prices. Spot aluminum prices have fallen more than $150 per ton since the start of the current year. Alcoa currently forms 2.53% of the Materials Select Sector SPDR ETF (XLB).

In the next part, we’ll explore the recent movement in physical aluminum premiums.

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