About London Metal Exchange Aluminum Futures
London Metal Exchange (LME) is one of the world’s largest commodities exchanges in metals. Established in 1877, LME have many futures and options contracts. This includes gold, silver, zinc, copper and also aluminum.
Launched in 1978, LME's Primary High Grade Aluminum Futures have emerged as a leading benchmark for the global aluminum market. The futures contract for aluminum is designed to provide market participants with a reliable LME aluminum price discovery mechanism, risk management, and investment opportunities.
Over the years, Aluminum LME Futures contracts have gained significant traction and demonstrated remarkable performance over the years. As we usher in the new year of 2024, this article aims to recap the performance of LME Aluminum Futures in 2023 and explore what lies ahead for them in 2024.
LME Aluminum Futures Contract Specifications
LME Primary High Grade Aluminum Futures Contract has the following specifications:
LME currently offers a contract size of 25 tonnes/lot, while the delivery dates vary for the daily, weekly, and monthly futures.
The last trading day of the contract month is up until the close of the first Ring the day before the prompt date.
LME Trading Hours are from Monday to Friday, at these trading hours:
1:00 am – 7:00 pm (British Summer Time, GMT + 01:00)
Primary High Grade Aluminum Futures symbol: AH
Orient Futures Singapore provides brokerage services for this futures contract.
LME Aluminum Futures 2023 Performance
Figure 1. LME Aluminum Futures Price for 2023 from Westmetall
According to INE, LME aluminium price is down about 7% this year as China has been slow to recover from the Covid-19 lockdowns, while economic growth in Europe and the US has remained sluggish.
China’s slow economic recovery and a global slowdown in manufacturing has caused the market to face a weak demand of aluminum. This situation has resulted in increasing inventories in LME-registered warehouses, which act as the market of last resort.
A notable concern is the rising share of Russian-origin aluminum in LME warehouses, reaching 79% at the end of October, the highest level in at least a decade. Before the Ukraine conflict, this share was less than 10%. Although the share of Russian metal declined slightly from 81% in August, the concentration remains significant.
The surge in Russian aluminum in LME warehouses has raised concerns, especially as some European buyers have been voluntarily avoiding Russian material since the Ukraine invasion. There is apprehension that LME warehouses might become a repository for unwanted Russian metals. This situation has contributed to a disconnect between LME and actual traded prices. While there are currently no sanctions on buying Russian material, the possibility of LME warehouses being used as a dumping ground for Russian aluminum has created uncertainties.
If the share of Russian aluminum continues to grow on the LME, there may be expectations for the exchange to take action. A potential scenario could involve the LME banning Russian metal, a move that could be viewed as bullish for the aluminum market.
However, it is currently anticipated that the LME might refrain from such action unless governments implement targeted sanctions. The situation highlights the complexities and challenges facing the aluminum market, with geopolitical factors influencing supply dynamics and market behavior.
LME Aluminum Futures Market News
LME Aluminum Supply and Demand
According to ING, the global aluminum market is facing challenges in demand for aluminium, particularly in traditional sectors like building and construction. While Chinese aluminum has shown strength, driven by increased demand from the green sector, more conventional areas like construction have disappointed. Year-to-date numbers for sales, starts, and under construction in building and construction are all in negative territory in China. This trend is expected to persist, impacting aluminum demand, considering the current low level of starts and the time lag between starts and aluminum usage.
In Europe and the United States, building and construction sectors also face weakness, with manufacturing Purchasing Managers' Index (PMI) figures stagnating globally. Higher borrowing costs and uncertainty over monetary policy are anticipated to continue weighing on aluminum demand. European demand has been particularly affected in 2023, and it is expected to be a major factor behind weak growth in 2024. These factors underscore the challenging landscape for the aluminum market, influenced by both sector-specific dynamics and broader economic conditions.
LME Aluminum Futures Price
According to Trading Economics, LME Aluminum futures experienced a decline to $2,150 per tonne in December this year, marking the lowest point in almost four months.
This drop is attributed to the impact of low demand, outweighing previous measures aimed at reducing supply. The global economic slowdown, coupled with central banks implementing restrictive interest rates and a debt crisis in the Chinese real estate sector, contributed to the pressure on key industries utilizing aluminum as a raw material.
Norsk Hydro, a major Norwegian aluminum company, reported a 57% plunge in aluminum sales in the third quarter, citing downturns in global industrial and real estate sectors, along with reduced demand for Chinese electric vehicles.
Alcoa also incurred significant losses, impacted by volatile energy prices affecting industrial activity. Despite these challenges, China, as the leading producer, imposed limits on expanding production capacity beyond 45 million tons to prevent oversupply and address energy consumption concerns from outdated infrastructure, providing some stability to the market.
LME Aluminum Futures 2024 Market Outlook
Figure 2. ING Price Forecast for LME Aluminum Futures in 2024
According to ING, the demand outlook for aluminum appears lackluster, with some potential upside risks associated with the growth of green energy in China.
However, outside of China, the overall demand outlook remains subdued. The expectation is that prices will experience a slow upward trend in the coming year as demand gradually recovers.
The short-term outlook is assessed as neutral to bearish for demand, and a substantial recovery is not anticipated until the second quarter of 2024.
This recovery timeline aligns with expectations for potential rate cuts by the US Federal Reserve. There is a risk, however, that demand could weaken further if persistently high inflation keeps interest rates elevated. The projected average LME aluminum prices for 2024 are estimated at $2,260 per ton.
Start Trading With Orient Futures Singapore
Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us.
We provide bespoke services to our professional clients, tailored to their corporate and individual needs. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.
