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3 Reasons Why Aluminum Prices Are Rising

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Nov. 9 2015, Published 1:57 p.m. ET

Aluminum prices

As discussed previously, aluminum prices have been on an uptrend in November despite overall weakness in the commodities space (DBC). In this part of the series, we’ll look at the possible reasons behind the recent rise in aluminum prices.

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Capacity cuts

  • On October 30, 2015, Century Aluminum (CENX) announced plans to curtail one of the three potlines in its Sebree smelter by December 31, 2015. This is the third curtailment announced by Century Aluminum in the last two months.
  • On November 2, 2015, Alcoa (AA) announced that the company would curtail its aluminum smelting capacity by 503,000 metric tons and its alumina refining capacity by 1.2 million tons.
  • According to Reuters, “Alcoa’s cuts, coupled with recent announcements by Century, represent around 30 percent of U.S. aluminum production and will leave just four smelters operating in the United States, with capacity to produce 759,600 tonnes per year.”

Together, Alcoa and Ball Corporation (BLL) form ~4%% of the Materials Select Sector SPDR ETF (XLB).

Inventory

  • The graph above shows the trend in LME (London Metals Exchange) aluminum inventories. All metal that enters LME warehouses is on warrant. The warrants are canceled when the bearer of these warrants requests the physical delivery.
  • On November 6, 2015, LME-registered warehouses had a total aluminum inventory of 3.0 million metric tons, out of which almost 45% was on canceled warrants. Between October 26 and November 6, canceled warrants surged more than 53%. However, the total aluminum inventory of LME-registered warehouses fell over this period. Generally, falling aluminum inventories and rising canceled warrant stocks support prices.

China exports have fallen

One of the major reasons behind the weakness in aluminum prices has been a rise in Chinese aluminum exports. China’s customs department released its October trade data on November 7, 2015. According to the data, China exported 330,000 tons of unwrought aluminum in October, the lowest amount since February 2014.

In the next part, we’ll discuss how different aluminum companies would be impacted by a rise in aluminum prices.

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