(June 30): Aluminium headed for the steepest monthly loss since 2008 as expectations for a return of lost Middle Eastern supply saw it rapidly unwind an Iran-war-induced rally.
The metal has plummeted more than 15% so far in June as the interim US-Iran peace deal spurred optimism over a resumption of Middle Eastern shipments as the Strait of Hormuz opens up. That wiped out gains made over the previous three months due to the loss of supply from the region that accounts for nearly a 10th of global output.
Record exports from China and daring voyages through the strait to replenish alumina reserves have also helped fuel aluminium's swift reversal of its earlier rally. The market has flipped into a contango structure, where prompt prices are cheaper than for later-dated contracts, over the last couple of weeks, signalling concerns over a shortage have eased.
“Ex-China premiums dropped rapidly following the news of truce deals, signalling supplies are not that tight any more,” said Peng Dinggui, an analyst at Zhongtai Futures Co. “The rapid plunge in aluminium prices caught many investors off guard. It is causing a bit of panic in the market. Some Chinese investors expect prices to drop further.”
Along with other metals, aluminium has also been hit by a sharp run-up in the US dollar since mid-May, making it more expensive for many buyers. Expectations that the Federal Reserve will need to keep interest rates higher for longer or possibly raise them to curb inflation have also weighed on the demand outlook.
See also: Aluminium falls to lowest since February as dollar strengthens
Aluminium rose 0.5% to US$3,103 a tonne on the London Metal Exchange as of 12.24pm in Shanghai and is down 15.4% for the month, the most since October 2008. Copper advanced 0.4% to US$13,332 a tonne and is 2.2% lower in June. Iron ore dipped 0.1% to US$98.75 a tonne in Singapore.
Zinc climbed 0.2% to US$3,482 a tonne, as a report from state-backed researcher Beijing Antaike Information Co said that China’s major smelters planned to cut their use of zinc concentrate this year by 600,000 to one million tonnes to reduce losses.
The potential reduction of refined zinc output is not enough to overturn the domestic surplus for this year, said Liu Xiaoyi, an analyst with Zijin Tianfeng Futures Co. It will translate into a drop of about 200,000 to 300,000 tonnes of refined zinc output, or as much as 4% of total Chinese production last year, she said.
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