LME WEEK 2019: Aluminium traders eye 'perfect storm' to cash and carry in 2020

A combination of weak macroeconomics and an anticipated increase of global aluminium supply is prompting expectations that more participants will purchase metal with the intention of holding and financing it for long-term gain.

The expected slowdown of the global economy, participants say, will lead to a decline in demand and metal consumption meaning more stock will be put on warrant on the London Metal Exchange. That in turn should press the cash price lower than forward prices leading to wide contangos on the LME aluminium spread, meaning participants can cover the cost of carrying metal and others can even profit by just holding on to units. A potential recession could also result in global benchmark interest rates being lowered, which means cheaper borrowing and thus carrying costs. That further bolsters the margins of holders of metals. US Federal Reserve has cut interest rates twice this year, most recently lowering it by 25 basis points to a range of 1.75-2% in September, down from a peak of 2.25-2.5% in December 2018. Meanwhile, the International Monetary Fund in October downgraded its projection for global economic...

Published

Justin Yang

October 23, 2019

14:02 GMT

London