On Tuesday, the London Metal Exchange (LME) aluminium tom-next spread soared to its highest level since May 2021, driven by a significant drop in on-warrant stock levels. Analysts at ING have pointed to these dwindling stock levels as a source of market supply concerns.
The International Aluminium Association (IAI) reported an increase in the average daily global primary aluminium output, reaching 195.9 thousand tonnes (kt) in March, up from 195.4kt in the previous month. This rise in production reflects a 7.2% month-on-month and 3.5% year-on-year increase, culminating in a total of 6.1 million tonnes (mt) for March, marking the highest output since October 2023.
Production gains were noted across all major producing regions, with Chinese output climbing 7% month-on-month and 5% year-on-year to 3.6mt in March. The first quarter of 2024 saw a cumulative production increase of 4.1% year-on-year, totaling 17.8mt. In China alone, production rose by 5.2% year-on-year to 10.5mt from January to March.
Moreover, aluminium production in Asia, excluding China, increased by 7% month-on-month and 3.3% year-on-year to 409kt in March. Western and Central Europe also experienced a production hike of 7.4% month-on-month, reaching 232kt.
The LME data revealed that cancelled warrants for aluminium have been on the rise for five consecutive sessions, increasing by 15,200 tonnes to 348,000 tonnes as of Monday, the highest since February 8, 2022. The majority of these cancellations originated from warehouses in Gwangyang, South Korea.
Concurrently, on-warrant aluminium stocks plummeted by 19,200 tonnes over seven consecutive days, hitting a record low of 152,000 tonnes. The aluminium tom-next spread reached a premium of $25.25 per tonne at one point on Monday, indicating the most significant backwardation since May 2021.
Furthermore, the cash-to-three-month spread for aluminium transitioned to a backwardation of $27.1 per tonne, contrasting with the previous day's contango of $10.1 per tonne, marking the largest backwardation since early June 2023.
In the metals sector, MMC Norilsk Nickel reported a 10% year-on-year decline in nickel production during the first quarter of 2024, attributing the drop to an accumulation of work-in-progress inventory. The company has adjusted its 2024 nickel production guidance to between 184kt and 194kt, which represents a 9% decrease from the 208.6kt produced in the previous year.
In contrast, copper output experienced a slight year-on-year increase of 1% to 10kt in the first quarter, with the company forecasting a copper production range of 334kt to 354kt for the year.
InvestingPro Insights
As the London Metal Exchange (LME) aluminium tom-next spread hits a significant high, investors are closely monitoring the metals sector for investment opportunities. In this context, real-time data from InvestingPro provides valuable insights. The market capitalization of the company in focus stands at $6.41 billion, indicating a substantial player in the industry.
Still, the P/E ratio is currently negative at -9.64, reflecting the company's recent lack of profitability. This is further evidenced by a negative adjusted P/E ratio for the last twelve months as of Q1 2024, which sits at -13.33.
InvestingPro Tips suggest that net income is expected to grow this year, offering a glimmer of optimism for the company's financial outlook. Additionally, the stock has demonstrated strong returns over the last month and three months, with a 15.76% and 23.63% increase, respectively. These returns are particularly noteworthy given the stock's volatile price movements.
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