Aluminum Prices May Have Bottomed Out, at Least for Now



Aluminum prices

On June 30, the three-month rolling aluminum futures contract on the LME (London Metals Exchange) was trading at $1,691 per metric ton, down ~0.6% from its previous day’s closing. While global markets have corrected sharply on concerns about Greece, base metals managed to hold their ground. However, base metals like aluminum and copper fell significantly in the preceding two months.

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Is a bottom in sight for aluminum prices?

The above graph shows the recent trend in spot aluminum prices. You should be aware that aluminum prices are a key driver for companies like Alcoa (AA), Century Aluminum (CENX), and Rio Tinto (RIO).

As the leading aluminum producer in North America, Alcoa is part of several ETFs. It currently forms 0.8% of the iShares North American Natural Resources ETF (IGE) and 2.39% of the Materials Select Sector SPDR ETF (XLB).

Stability in aluminum prices is key for Alcoa

One of the primary reasons behind the recent underperformance of aluminum producers is the decline in aluminum prices. There’s not much chance aluminum prices will dip much from these levels, barring any major macro surprise. The recent trend in aluminum prices shows stability could be returning.

Stability in aluminum prices would be a positive for Alcoa. Lower aluminum prices have taken a toll on the aluminum industry. Noranda Aluminum (NOR) is reportedly looking at “strategic options” since the all-in aluminum price has plummeted.

Please note that the all-in aluminum price consists of LME aluminum prices plus regional aluminum premiums. How are aluminum premiums expected to play out in the remaining part of the year? We’ll explore that in our next part.


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