Aluminum Holds at $1,500 as Industrial Metals Show Strength

Falling Aluminum Prices May Put a Damper on Alcoa's 4Q15 Earnings

(Continued from Prior Part)

Aluminum

Aluminum has been trading in a narrow price channel of $1460–$1530 in December 2015. However, the good news is that LME’s (London Metals Exchange) three-month aluminum contract has now closed above the $1,500 per metric ton level for three consecutive days.

There has been upward movement in most commodities over the last week, and most industrial metals saw upward price movement. Copper is flirting with the $4,700 level after languishing near $4,500 for the previous couple of weeks. Benchmark iron ore prices also moved above the $40 per ton level.

What will drive aluminum?

The movement in aluminum prices will depend on how China addresses its overcapacity problem. While China has added to its aluminum smelting capacity, its domestic demand has not kept pace. The end result is a massive increase in Chinese aluminum exports.

Rising Chinese aluminum exports have counterbalanced production curtailments by aluminum producers including Alcoa (AA), Norsk Hydro (NHYDY), Century Aluminum (CENX), and Rio Tinto (RIO).

Investors who want to avoid the hassles of picking individual stocks can also consider the SPDR S&P Metals and Mining ETF (XME).

Will China curtail capacity?

There have been reports that Chinese smelters plan to curtail some of the excess capacity. However, markets would like to see some real action on this front before aluminum sees upward price movement.

Apparently, amid all the capacity cut talk, China imported 450,000 metric tons of aluminum in November 2015—the second highest amount on record. It would be interesting to see if China’s December aluminum exports reflect what the country’s smelters have been talking about for so long.

You can also read Conflicting Signals from China Leave Alcoa Investors Guessing to explore more on the recent news flow from China.

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