Lead aluminium

Aluminium is performing more like lead metal today.

At the time of writing, the December contract on the SHFE was at RMB11,090, a drop of RMB80 from Friday. Shanghai closed last week at RMB11,170, but in between time we have had the Q3 GDP print come out. With Q3 coming in at 6.9%, the message should have been a good one, or at least not a negative one, for the market. Instead, the market has assumed that a better then expected GDP means that Beijing will act a little more slowly on stimulus actions.

China has not seen such a low price since 2009 in the depths of the Global Financial Crisis. We saw the price break through the 12,000 barrier, and quickly slipped to RMB11,500. At that time, we thought that support for the price would increase quickly. That has not happened, and instead of zigzagging, the price has dropped like a lead ball.

We still think support will come, just not as quickly as expected. Support will be in the form of closures. In this week’s Weekly Carbon Monitor and Weekly Aluminium Alerts, we told subscribers of some closures recently announced. Unfortunately two other things have happened - new capacity is being brought on line, and the export arbitrage window is re-opening. Both of these are not helpful for restoring China’s metal balance.

The interesting thing to look at now is, what will the Cash Cost Curve look like. Regular readers will know that AZ China publishes a Quarterly Cash Cost Curve briefing note. We will be preparing and issuing the report in the next few days. Compared to today’s price, there aren’t many smelters with their heads above water. Like having lead boots, some smelters will surely go under.

AZ China’s subscribers and clients receive the Client Briefing Note first, then we send it to our mail database, a few days before we announce it here on the blog. If you want to be on the mailing list, and not miss out on this free report, please let me know using the contact form below.

Get the lead out!