Aluminum MMI: Chinese Primary Drives Two-Point Increase

　　The Aluminum MMI inched two points higher in July, returning to 2015 levels.

The Aluminum MMI increase was driven by a  5% increase in Chinese primary aluminum. The LME price inched up by 1%, contrary to other base metals that have experienced higher price increases this month.

Analysis of supply and demand might suggest quite a bullish outlook for aluminum. According to a recent Hydro aluminum quarterly report, global primary aluminum production through Q2 of this year saw a .492 million metric ton deficit. However this deficit needs to be weighed against increased Chinese aluminum smelting capacity of up to 2.39 million metric tons this year, according to a recent article in Hellenic Shipping News.

Thus, we could see an oversupply situation.

However, going back to an earlier article on aluminum price direction, as expected prices have stayed between the two limits of what is called a wedge formation. Aluminum prices have traded  in a sideways trend since April. As stated above, aluminum prices, contrary to other base metals, have not jumped in July.

Aluminum prices tried to climb but instead, retraced back again with heavy selling volume, which commonly signals price weakness.

We would expect to see aluminum prices climb and remain in a bullish market.

The Gasoline-Aluminum Correlation

Buying organizations have told MetalMiner gasoline prices are correlated with aluminum prices.

Analysis of the two charts together suggest indeed the general trends move in tandem. Aluminum prices rose at the end of 2016, as did gasoline prices. It should not come as a surprise to MetalMiner readers that the two prices are correlated.

MetalMiner carefully considers overall commodity price trends for individual metal market analyses, of which oil is an important element for commodity analysis. When oil — and, therefore, gasoline — prices go down, aluminum prices tend to follow the same trend.

The longer-term analysis of gasoline prices reveals a sideways trend, which began during the spring of 2016.  What did the trend for aluminum look like compared to gasoline for the same time period? It looks the same!

The conclusion: Gasoline prices and aluminum prices are correlated.

However, when looking at shorter time periods, the degree of the price movements may be dissimilar. One can see that in the chart below. Gasoline looks like a good barometer for longer term correlation with aluminum but less so for short-term fluctuations:

　　What This Means for Industrial Buyers

Though it’s tempting to assume that the two-point MMI increase suggests a bullish outlook, we would like to see aluminum ingot prices break out of a sideways trend with increased trading volumes before claiming a bullish market.