The London Metal Exchange (LME) price touched a three-year low of US$1,705 per tonne in October and has failed to stage any significant bounce over the intervening period. It is currently trading around the US$1,760 level.
Earlier this year there was a lot of excited talk in the market about growing supply deficits and falling stocks.
Fast forward to today and LME stocks are surging again and no-one is talking about deficits any more.
LME stocks are a poor lens through which to understand aluminium's dynamics but the rapid increase in visible tonnage has reinforced concerns about a deteriorating demand outlook.
Aluminium producers have been here before and know trouble when they see it with Hydro announcing output cuts and both Alcoa and Rio Tinto reviewing their smelter portfolios.
Stocks surge as spreads tighten
Almost 394,000 tonnes of aluminium have been warranted in the LME warehouse system over the last four weeks, and the headline total has jumped from 940,500 tonnes to 1,288,150.
Most of the inflow has been split across just three locations — Port Klang and Johor in Malaysia, and Singapore.
This appears to be the emerging stocks liquidity hub for the global aluminium market with new CME warehouses in the region also attracting metal. The same three locations account for around 65% of the 20,237 tonnes in the CME system.
There's a natural analytical instinct to interpret LME stock movements as a sign of underlying production-usage dynamics.
But as ever with the LME aluminium contract, surging stocks say far more about LME timespreads and the storage market than about the fundamentals of the aluminium market.
The driver of the recent stocks deluge was a tightening in the front part of the LME forward curve. The cash-to-three-months timespread flared out to a backwardation of US$22.75 per tonne early last week. It was the highest premium for cash metal since December of last year.
LME spreads are key to the profitability of storing metal under financing deals. When spreads are relaxed, as was the case for the first nine months of this year, financing metal in cheaper storage outside of the LME warehouse system was profitable, which is why LME stocks fell to a decade low of 895,625 tonnes in early September.
Spreads tightness, by contrast, deters demand from both off-market financiers and physical users, while simultaneously encouraging short position holders to deliver metal into the LME system.
The resulting ebb and flow of metal between exchange and off-exchange storage has been a defining feature of the LME marketplace for much of the last decade.
The current spreads tightness has yet fully to play out despite the high level of metal deliveries into LME warehouses. The benchmark cash-to-three-months period was still valued at a US$7.25 per tonne backwardation at Friday's close.
LME stocks movements do not provide a linear read-through to the underlying state of the physical market but they do carry psychological weight.
Just as the steady draws in the first part of the year dovetailed neatly with a narrative of a tightening market balance, so the most recent increases reinforce negative sentiment about aluminium's deteriorating outlook.
The real stocks story, however, continues to play out in the non-LME storage market, where up to 10 million tonnes of metal are sitting in the statistical shadows.
There were strong indications that such shadow stocks were falling earlier this year but the trend is believed to have gone into reverse as demand has weakened.
Global aluminium demand is widely expected to contract this year, for the first time since the Global Financial Crisis.
The demand hit relative to some of the other base metals will be mild but this is still a shock for a market that has long enjoyed a stellar usage growth profile.
The transport sector has powered aluminium usage in recent years, but it has turned negative this year.
Automotive sales are falling just about everywhere as the industry struggles with the combination of cyclical downturn and structural shift to electric vehicles.
In other sectors a more positive story is outweighed by a surge in aluminium scrap availability occasioned by China's steady clampdown on imports of what it terms "waste".
You can understand why producers are once again running the ruler over their operations.
Norsk Hydro has announced a 20% cut at its Slovak smelter in the fact of what it termed "a demanding market".
Alcoa has an ongoing review of 1.5 million tonnes of smelter capacity, while Rio Tinto has flagged a potential output cut at its Tiwai Point plant in New Zealand.
The last time producers were forced collectively to curtail capacity was during the price trough of 2015-2016, when LME aluminium touched a multi-year low of US$1,432.50.
The irony is that global production hasn't been rising at all this year, not even in China, the world's largest producer.
Production outside China was flat year-on-year in the first 10 months of 2019, while run-rates in China fell by 1.5% on the back of a number of unforeseen outages.
That's one of the reasons China's exports of semi-fabricated products have also been running flat relative to 2018 levels.
The problem is that production is expected to accelerate again next year with analysts at CRU forecasting Chinese output to rise by 7% in 2020.
Unless there is a sudden turnaround in demand, that production surge is going to come at just the wrong time for an aluminium market that is struggling to hold even these low price levels.
Nor is there much in the way of support from the production cost curve since the price of alumina, the key metallic input into the aluminium smelting process, is also falling.
The CME's alumina contract is currently trading around US$279 per tonne, down from US$418 in April.
Aluminium is currently experiencing something of a perfect bear storm — demand weakness, falling raw material prices, rising visible stocks and a sense that the downtrend in shadow stocks has ended. Relatively weak production in China is the one positive and that doesn't look likely to last.
Supply cuts are back on the agenda as producers look to their operating margins.
And if all that sounds familiar, it's because aluminium's future is looking a lot like its past.