SM Commodities Index - April 2021

13 May 2021

The latest prices and key trends from the SM Commodities Index.

Aluminium

The aluminum market has tightened over the past month with premiums widening globally, not just in the US. Fundamentally, the market remains in surplus, although it is in deficit in China, which is drawing metal to Asia.

The problem is that congestion in ocean shipping is hampering the flow of metal from where it is available to where it is needed, lifting premiums.

A second worry is a concern over Chinese production, with the industry confronting the possibility that a hard cap will be enforced on both capacity and production by Chinese authorities. IHS Markit believes the latter fear is overblown at least in the immediate near-term. Chinese production is forecasted to total 39.4m tonnes this year against a potential cap of 45m tonnes, leaving room for growth.

Logistics bottlenecks will eventually be cleared, though they may linger across the second half of 2021. Current and projected alumina prices provide smelters with good margins and therefore every incentive to produce. Shanghai inventory continues to inch higher while the forward curve has flattened, eliminating the profitability of the carry trades that are believed to have locked up substantial quantities of off-exchange inventory.

The release of this metal back into the market should help alleviate some of the current tightness. The bottom line is that we see an upside that is limited, with reasserting fundamentals likely to knock $100-$200 per tonne off the LME price by year-end.

Corn

Corn prices continue to rise nearing previous all-time highs, as old crop US ending stocks contract from strong demand, as well as unanswered questions surrounding the size of the 2021 crop. Dryness concerns in Brazil for their second crop corn keeps the US as the only export game in town.

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