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Aluminum Prices Ease from 2017 Highs, Despite Chinese Curtailments

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Dec. 1 2017, Updated 6:00 p.m. ET

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.

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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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