China’s Support Counters Weak Demand, Shapes Aluminium Market Dynamics
Aluminium prices concluded the increase, reaching 197.40, as China’s support measures provided a lift. In a bid to foster equitable trade, China’s commerce ministry strongly advocated for the removal of tariffs on Chinese steel and aluminium imports imposed by the United States.
A remarkable development emerged as the discount on aluminium for immediate delivery, compared to the three-month contract on the London Metal Exchange (LME). Soared to levels unseen since the 2008 global financial crisis. This conspicuous divergence underscores the challenge posed by weakening demand amidst escalating supply.
Referred to as contango, the discount for immediate aluminium against the three-month contract surged to $52 per metric tonne during last Monday’s market closure. Marking the highest point since November 2008.
This dramatic shift contrasts with the premium, or backwardation, of $40 noted at May’s end. The continuous contango trend originated in early June, prompted by China’s Yunnan province ramping up energy-intensive aluminium production post-power constraints.
During the first half of 2023, the International Aluminium Institute reported a 1.8% year-on-year surge in global primary aluminium production. Largely attributed to elevated production in China.
Furthermore, China’s output reached nearly record-breaking levels in July. Conversely, the sentiment within the construction sector deteriorated due to the suspension of bond trading activities by Country Garden.
In the ever-evolving aluminium market, China’s backing serves as a counterbalance to demand challenges, shaping the trajectory of this vital industry.
China’s Backing
- Demand Weakness
- Tariffs’ Impact
- Aluminium Market