No upside to aluminium until trade war calms: Sucden

The outlook for aluminium prices on the London Metal Exchange (LME) in the fourth quarter is bleak and will not improve unless there is a marked improvement, not just in the market's fundamental aspects of demand and supply, but also in the progression towards resolving the US-China trade dispute, Sucden Financial's head of research, Geordie Wilkes, said.

"There isn't much on the upside," Wilkes said of the light metal's immediate prospects. "There is a strong fundamental case of a significant deficit, but end-user demand remains weak."

Even an aluminium deficit of about 800,000t could be easily covered by new Chinese capacity, and the market will need to see big deficits for years before existing stocks are drawn down to the point where supply flows are threatened, Wilkes said.

Sucden's forecast for aluminium prices through the fourth quarter of 2019 is $1,618-1,950/t, with little prospect of moving beyond that range any time soon. The three-month aluminium contract on the LME settled at $1,717/t in today's official session.

To see aluminium prices rise beyond Sucden's forecast range would require a significant improvement in international trade relations, and that is something the industry cannot achieve on its own.

"If we were to see a resolution, or just progress in the trade war, that could lead to a relief rally," Wilkes said.

Wilkes pointed to the slowdown in the Chinese property market, where the People's Bank of China is unlikely to further support an already well-leveraged market in which debt and prices have been climbing swiftly.

And the automotive market is weak all over the world, although Wilkes highlighted the bright spot of US light vehicle demand, which helped aluminium sheet shipments to the US grow by one-fifth year on year in July. But with the rise of ride-sharing initiatives, it is unlikely that the automotive market will return to its former strength. There are about 66mn ride-sharing application users in the US and about 460mn in China.