Aluminum prices have moved largely sideways with a negative bias this year. So far, aluminum is trading at a YTD (year-to-date) loss. Prior to this, the lightweight metal had seen sharp gains over the last two years.
Looking at aluminum’s recent price action, a stronger US dollar, an increase in LME (London Metal Exchange) inventory levels, and a sell-off in global equity markets have been bearish drivers. We should remember that aluminum, like most other commodities, is priced in US dollars. A stronger dollar makes aluminum relatively costly in other currencies.
Another thing to consider is that we haven’t exactly seen any moderation in Chinese aluminum exports despite the country’s winter month smelter curtailments. Chinese aluminum exports, which have been blamed for creating a glut in global markets and triggering plant closures in other parts of the world, rose 14.1% YoY (year-over-year) in January. This rise was preceded by a 4.5% yearly rise in 2017.
President Donald Trump is looking to impose a 10% tariff on aluminum imports. The move is expected to support US aluminum producers who have shut down some of their US plants because they couldn’t produce aluminum profitably enough amid lower global aluminum prices.
Following the implementation of these tariffs, we could see an increase in US aluminum production. Century Aluminum (CENX) has already indicated that it intends to bring some offline capacity back after the tariffs are implemented. However, it remains to be seen whether Alcoa (AA) will look at restarting any of its idled US smelters.
In the next article, we’ll look at the recent trend in alumina prices (AWC).
Despite Alcoa's recent weakness, its downside could be limited. Let’s discuss this in perspective.
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