Prices For This Metal Are 15% Higher Than We Think

We tend to think of commodities prices being singular.

“Oil” is currently selling for $99. “Copper” for $3.30.

Of course, it’s actually a lot more complicated. There are many kinds of oil. Oft-quoted West Texas Intermediate is indeed selling for $99. But other crude blends like Brent are going for $111. A crude like Asia’s Tapis is selling even higher.

Similarly, we think of base metals price as having one, single price. But that’s simply not the case these days.

As evidenced by some strange happenings in the current aluminum market.

Platts reported last week that aluminum prices have seen extreme geographic divergence of late. Specifically, the value of aluminum in the U.S. has soared relative to other parts of the world.

Prices for aluminum in certain U.S. locations have in fact hit a record premium to the quoted London Metal Exchange aluminum price. With U.S. metal reportedly selling at 12 cents per pound higher than LME.

That’s a big premium, given current LME prices are only running $0.78 per pound. The 12 cent difference in American prices thus equates to about a 15% uplift for metal sold in this part of the world.

This is important, because most observers generally don’t think about such geographic disconnects in a market like aluminum. Investors usually take the LME price more or less as gospel.

But these price discrepancies show that LME quotes don’t give the whole picture. LME prices alone suggest a fairly depressed aluminum market right now. But the numbers above show us that firms selling aluminum in America are in fact enjoying relatively attractive pricing. Meaning such companies might be performing a lot better than investors anticipate.

There’s no clear reason for the aluminum divergence. But some traders noted that U.S. buyers are simply having difficulty attracting metal into this part of the world. Again suggesting this market isn’t truly global–the price depends a lot on where you are.

Something to keep in mind as we place our bets in the aluminum space–and the wider metals complex.

Here’s to the best markets on Earth,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

 

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