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Aluminum Prices Ease from 2017 Highs, Despite Chinese Curtailments

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Aluminum prices

Aluminum was among the best-performing base metals in the first half of 2017. The lightweight metal outperformed copper in 1H17 by a decent margin.

However, copper staged a smart comeback in 2H17. YTD (year-to-date), the LME (London Metals Exchange) three-month copper contract has risen 23.0%, while aluminum prices have gained 21.0% so far in this year, based on November 30 closing prices.

Notably, aluminum showed weakness in November. Aluminum was trading near a $2,200-per-metric-ton price level at the beginning of November. However, prices have now dipped below $2,100 per metric ton. Aluminum producers including Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHY) have also followed aluminum lower this month.

Key drivers

While aluminum’s story has been about rising global demand and smelter curtailments in China, copper’s story is about a looming deficit amid falling grades at leading copper mines. Aluminum markets are banking on capacity curtailments in China in the winter months, and we’ve already seen a decline in Chinese aluminum production last month. However, these cuts might be lower than what markets were expecting.

According to data released by the International Aluminum Institute, China produced ~2.5 million metric tons of aluminum in October 2017—a fall of 6.6% YoY (year-over-year). This is the third-straight month that we’ve seen a yearly decline in Chinese aluminum production.

Prior to that, Chinese aluminum production registered a yearly rise every month this year. In the first ten months of 2017, Chinese aluminum production has risen 4.8%, compared with the corresponding period last year.

In the next part, we’ll look at the recent trend in physical aluminum premiums (SOUHY) (RIO).

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