Aluminium bull narrative is lost in the shadows - Mr Andy Home

Mr Andy Home wrote in Reuters that this is a tangible, clear story which is really going to effect price, spreads and premiums. The story in question, according to Eoin Dinsmore, head of primary aluminium and products research at CRU, is a building supply deficit in the aluminium market. Mr Dinsmore’s presentation at the research house’s aluminium conference in London last week was titled: “Don’t doubt the deficit”.

Yet hardly anyone outside of the aluminium market believes in this unfolding bull narrative. Financial players are “simply not interested” in aluminium, according to Mr Colin Hamilton, managing director of commodities research at BMO Capital Markets. Mr Hamilton wrote in BMO’s round-up of the conference that “Over the past year client questions on aluminium have been few and far between, adding that the lack of investors at the meeting was itself a sign of the broader lack of interest.

The indifference is also clear to see in the London aluminium market where prices have done little more than trudge sideways since the start of the year. At USD 1,830 per tonne, aluminium is the second-weakest performer among the base metals after perennially out of favour lead.

Aluminium’s “clear” deficit narrative is playing out in the shadows, while visible dynamics fail to generate any such signs. True, London Metal Exchange stocks have fallen a long way from their mid-decade peaks of almost 5.5 million tonnes to 1.07 million tonnes currently. But the market knows much of this drawdown has simply been movement of inventory from higher-cost LME to lower-cost off-exchange storage as warehousing dynamics trump fundamentals.

Occasional mass inflows of metal into the LME system, such as the 54,875 tonnes that turned up in this morning’s stocks report, underline the message that what we see in the aluminium market is dwarfed by what we don’t see.

Each month brings a reminder of just how much aluminium China is exporting to the rest of the world in the form of semi-manufactured products. March’s tally of 546,000 tonnes was the second highest on record. That outbound flow touches on another apparent truth, namely that China is still sitting on massive underutilised production capacity with the potential to flood the market at any moment.

Supply-side reform and environmental clampdown do not appear to have stopped the Chinese aluminium production juggernaut. Too much capacity, too many exports and too much stock overhang is the popular perception of the aluminium market so it’s not entirely surprising that financial players and investors have been giving it a wide berth.

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