Russian Aluminium Giant Rusal Pivots Towards China

Commodity

Russia-Ukraine Conflict

Summary:

Russian producer Rusal's decision to buy into a Chinese raw materials supplier is a significant marker in the reconfiguration of the global aluminium map.

The purchase of a 30% stake in Hebei Wenfeng New Materials (HWNM) is intended to lock in supplies of alumina after Rusal lost access both to its Ukrainian refinery and its share of off-take from the Queensland joint venture plant in Australia.

The deal cements Rusal's growing dependence on China for the intermediate product that sits between bauxite and primary metal in the aluminium production process.

China, meanwhile, is emerging as an increasingly important market for Rusal's finished products as Western appetite for Russian metal shrinks.

The realignment of aluminium trade is part of the broader shift in Russian commodity trading patterns in the wake of last year's invasion of Ukraine.

But the fracturing of what was once a global aluminium supply chain is still evolving and this week's Sino-Russian deal may not be the last.

Closing the alumina gap

Rusal lost access to around 2.5 million metric tons of alumina in the weeks following the invasion of Ukraine in February 2022.

The company's ties with the Nikolaev refinery in Ukraine were immediately severed by the hostilities, while the Australian government's decision in March 2022 to ban exports of raw materials to Russia led to the suspension of Rusal's 20% off-take from the Queensland joint venture refinery.

Rusal's attributable alumina output fell by 28.3% year-on-year to 5,953,000 metric tons in 2022 and it was down another 24% in the first six months of 2023.

The company has been making up the shortfall with purchases of third-party material, first and foremost from China.

China did not export much alumina at all in 2021. Total shipments amounted to 117,000 metric tons, of which just 1,750 were destined for Russia.

That changed in March last year, when exports to Russia started mushrooming. China shipped over a million metric tons of alumina in 2022, of which 843,000 metric tons went to Russia.

The pattern has extended into 2023, exports to Russia rising by 22% year-on-year to 805,000 metric tons in the January-September period. They accounted for 86% of total outbound shipments.

Rusal's tie-in with HWNM places the trade on a more solid footing by reducing reliance on spot market purchases. The 30% stake will give it a similar share of the Chinese refiner's 4.8 million metric tons of annual capacity.

China imports more Russian metal

While Chinese alumina has been flowing to Russia, increasing quantities of Russian aluminium have also been entering China.

Imports of Russian-brand metal totaled 806,000 metric tons over the first nine months of this year, up from 276,000 in the same period of 2022 and accounting for 84% of China's total primary aluminium imports.

Some of this metal may be flowing down third-party channels as traders look to move surplus Russian metal into what has become the market of first resort.

Russian aluminium has evaded formal sanctions but the US imposed penal import duties of 200% in February this year, essentially closing off the US market. Many European buyers, meanwhile, are steadily reducing their exposure by self-sanctioning.

The collective impact is evident in the high percentage of Russian-brand aluminium sitting in London Metal Exchange warehouses. It accounted for 76% of available tonnage at the end of August.

Some of this Russian surplus is being redirected to the Chinese market, which appears to be short of primary metal in ingot form.

However, Rusal has stepped up direct bilateral trade as well. It announced earlier this month that Chinese foil manufacturer Mingtai Aluminium is doing trial runs of Rusal's low-carbon "ALLOW INERTIA" brand.

It is also shipping more alloy to China. China's imports of Russian alloy rose by 71% to 57,000 metric tons last year and they have remained robust so far this year.

Asia accounted for 33% of Rusal's sales revenue in the first half of 2023, up from 23% in the same period of 2022. The share of US sales fell from 7% to 2% over the same period and the share of European revenues slid from 40% to 31%.

Further alignment

Sino-Russian ties are becoming ever stronger in the aluminium market.

This is first and foremost a politically-driven development as China and Russia find themselves on the same side of an increasingly polarised metals market.

However, it is also a reflection both of Rusal's internal cost considerations and China's domestic market dynamics.

Western and Eastern aluminium producers alike are facing margin pressure due to low outright pricing and sliding physical premiums.

Rusal reported a 17% year-on-year decline in revenue in the first half of this year with adjusted net profit down by 54%.

The company is unsurprisingly looking at its smelter cost structure, according to Russian news agency Interfax, quoting unnamed creditor sources.

The three highest-cost smelters are Kandalaksha, Volgograd and Novokuznetsk, the first two of which are located in the west of the country. The lowest-cost plants, including the new Taishet smelter, are sited in Siberia, which is a lot closer to Asian markets, particularly China.

If smelter capacity is going to be trimmed, it's not hard to guess where the cuts will take place.

In years gone by China wouldn't have needed any more primary aluminium. But the world's largest producer is now operating close to a government-mandated capacity cap of 45 million metric tons.

As domestic demand keeps growing, near-shoring extra capacity in Russia may be an attractive option.

Even more attractive is the low carbon footprint of Russia's hydro-powered Siberian smelters. While Chinese producers have rushed into hydro-rich provinces such as Yunnan to produce "green" aluminium, much of the country's production still comes from coal-powered smelters.

From each country's perspective ever closer aluminium ties are starting to look like a win-win scenario.

Source: Reuters

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Devin

Economic

Central Bank

By opting for another 500bp hike at its October rate-setting meeting, the Central Bank of Turkey (CBT) has pulled the policy rate to 35% and repeated its signal for further tightening steps in rates and macro-prudential instruments to achieve disinflation. According to the bank, the persistence of upward pressures and risks on the inflation outlook and the alignment of the disinflation course with the forecast path in 2024 were the major driving factors.

In a note explaining the rate decision, the bank reiterated that it will continue with monetary tightening steps in a "timely and gradual manner" until it achieves a significant improvement in the inflation outlook. In this regard, the CBT acknowledged that the pass-through from the post-election adjustment in FX, wages and taxes has been "largely completed". It pointed again to strong domestic demand, stickiness in services prices and a jump in inflation expectations as the key factors putting upward pressure on the inflation outlook, while also mentioning the upside risk to oil prices due to geopolitical developments.

The MPC statement once again noted a determination to set the monetary policy stance in a way that achieves the projected disinflation path for 2024, which was set at 33% in the July inflation report (the next report will be released on 2 November) and the Medium-Term Plan. This stance is in line with Treasury and Finance Minister Mehmet Simsek's recent communication stating an aim to i) steer inflation expectations towards target levels and ii) move towards a positive ex-ante real policy rate. This is the case with the latest move, based on the CBT's forecast.

However, survey-based inflation expectations currently stand at 45.2% for the next 12 months, implying a higher trajectory in comparison to the central bank's target disinflation path. While the CBT expects underlying inflation trend "on course to decline", it also pledges that the policy rate will be determined in a way that will create the monetary and financial conditions necessary for ensuring a decline in the underlying trend of inflation. This guidance and current expectations both signal that the Turkish central bank's rate hike cycle is coming to the end, with the pace set decline in the months ahead.

The CBT stresses again the importance of FDI inflows, recovery in FX reserves, "stable" (changed from "improving" last month) external financing conditions, an improvement in the current account, as well as higher demand for TRY assets to contribute to price stability. Regarding domestic demand conditions, the CBT points to "rebalancing" this month, attributable to tightening financial conditions with a supportive impact on the inflation outlook.

Finally, to support the monetary policy stance, it pledged the continuation of quantitative and selective credit tightening moving at a gradual pace. Given the return of excess liquidity in the banking system prior to this decision, we should not rule out the possibility that the CBT may come up with a new quantitative tightening decision. Given the need for rebalancing to control inflation and reduce external imbalances, the central bank's move and its impact on deposit and loan rates will be key for tightening financial conditions and controlling domestic demand. Deposit rates (in up to three months and up to six months tenors) that moderated recently according to the latest data will be under close watch in order to prevent an early easing in financial conditions.

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Justin

Central Bank

Economic

After 10 consecutive hikes, the ECB's decision to leave policy rates unchanged should have been an easy one. The deposit rate remains at 4% and the ECB has increased rates by a total of 450bp since July last year. Comments by ECB President Christine Lagarde during the press conference didn’t give away any new insights into how the central bank plans to proceed with its bond portfolio or banks’ minimum reserves. Instead, Lagarde sounded more cautious on economic developments and stressed the ‘higher for longer’ principle a bit more than at the September meeting.

Since the start of the year, the ECB has been more optimistic regarding the eurozone’s growth outlook than many other observers. At today’s meeting, Lagarde sounded more cautious than in previous meetings, referring to the latest disappointing macro data and tentative signs of a weakening of the labour market. Sentences like “the [eurozone] economy should strengthen over the coming years" are much less optimistic than for example the ECB’s September forecasts which had eurozone GDP growth returning to potential growth already in the first quarter of next year. Lagarde referred to a further unfolding of the monetary policy transmission over the coming quarters, making a significant downward revision to the ECB's staff projections at the December meeting very likely.

Regarding inflation, the ECB didn’t change its view, seeing underlying inflation declining further and expecting measures of longer-term inflation expectations mostly around the 2% level. The impact of a new oil price shock seems to be less straightforward than expected.

The economic situation in the eurozone is deteriorating more and more quickly than the ECB had anticipated. The rise in bond yields since the September meeting has strengthened the impact of the ECB’s tightening efforts so far. At the same time, however, the events in Israel and Gaza as well as the roller coaster ride of oil prices has reminded everyone about the uncertainty and imprecision of inflation forecasts. If in doubt, cut it out is not only a golden rule for editors but also an often-practised principle of central bankers. If in doubt, just pause.

No news on non-interest rate tools

Interestingly, the ECB did not provide any new insights in the discussion regarding the Eurosystem’s bond portfolio and reserve requirements for banks. As much as there seems to have been a growing consensus to stop the reinvestments under the Pandemic Emergency Purchase Programme (PEPP) earlier than the official “at least until the end of 2024”, the latest fiscal policy and market developments show how difficult such a decision could still be. Lagarde said that the ECB today had not even discussed the topic of its bond portfolio. The discussion on banks’ minimum reserves has gained some traction recently but we expect it to be addressed in full only when the ECB presents the outcome of its review of the operational framework, probably in the spring of next year. During the press conference, Lagarde tried to play down this topic, mentioning that it was not a monetary policy instrument.

A pause now, a peak soon

After the September meeting, many ECB officials didn’t like the market interpretation of a dovish pause and therefore kept the door to further rate hikes wide open. If anything, today’s meeting actually further established the concept of a dovish pause. The ECB has never been more worried about the growth outlook and relatively relaxed about potential new inflation waves, stemming from oil prices. As a result, unless the eurozone economy miraculously rebounds in the coming weeks, we expect today’s dovish pause to eventually be seen as the end of the hiking cycle.

Source:ING

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Devin

Economic

The devastation wrought by the Israel-Gaza war and the continued destruction of infrastructure in the narrow enclave means it will take years for Gaza and the broader Palestinian economy to recover.

The outlook was grim even before the war broke out and it continued to operate "below potential in 2022 as persistent challenges intensified", the UN Conference on Trade and Development said in its latest report on the Palestinian economy on Wednesday.

"These include loss of land and natural resources to Israeli settlements, endemic poverty, a shrinking fiscal space, declining foreign aid and the build-up of public and private debt," the UN agency said.

The latest conflict, although mainly limited to Gaza so far, will have a drastic impact on the broader economy as unemployment will rise further and more people will fall below the poverty line in the territory of 2.4 million people, according to analysts.

The continued bombardment of Gaza has turned into a humanitarian crisis and the economic fallout of the siege and devastation is the worst the territory has ever experienced.

"Israeli air strikes have caused extensive and severe damage to Gaza's infrastructure that pales in comparison to previous rounds of conflict, while its blockade has severely reduced the availability of food, fuel, electricity, water and medication," said Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit.

"Gaza's economy will take years to recover from the damage already – and that has yet to be – done."

Israel imposed a land, sea and air blockade on the Gaza Strip in 2007 that has severely hampered the movement of people and goods and hit the enclave's economy hard.

Even though Palestinian gross domestic product grew by 3.9 per cent in 2022, per capita real GDP was still 8.6 per cent below its 2019 pre-coronavirus level.

In Gaza, real GDP per capita was 11.7 per cent below the 2019 level and close to its lowest level since 1994, according to Unctad data.

Unemployment remained high last year, at 24 per cent, across the occupied Palestinian territory, 13 per cent in the West Bank and 45 per cent in Gaza – with women and youths hit hardest.

"Poverty increased, rendering 40 per cent of the population in need of humanitarian assistance," Unctad said.

"Three decades after the Oslo Accords, the hoped-for convergence between the Palestinian economy and Israel's remains obstructed by occupation policies. Instead, the two economies have diverged, with the Palestinian per capita GDP currently standing at just 8 per cent of Israel's."

The Palestinian economy is expected to continue operating well below its potential and growth is projected to hover at about 3 per cent, according to a World Bank report published last month, before the start of the war.

Given population growth trends, income per capita is also expected to stagnate, dragging down living standards, the Washington-based lender said at the time.

Palestine Economy 'Will Take Years' to Bounce Back from Devastation Caused by Gaza War_1

The EIU expects Palestine's economic expansion to be about 3 per cent this year, continuing the downward trend since the post-pandemic rebound in 2021, which was halved in 2022 to 3.9 per cent.

The International Monetary Fund earlier this year projected real GDP growth of 3.9 per cent for Gaza in 2023, 2.2 per cent in 2024 and 1.9 per cent in 2025.

"Now, the economic outlook for Gaza is worse. The damage caused to Gaza's economy by the war … only exacerbates these negative trends, with repercussions for the West Bank economy, as well," Mr. Thaker said.

Currently, Palestinian GDP losses are estimated to exceed $500 million, or 3 per cent of the 2022 GDP, he said.

"Daily loss of production in Gaza is estimated at $16 million and Gaza's level of trade will plummet below the 12 per cent of the total Palestinian trade size in 2023," he said.

The Unctad report said the Palestinian economy's "forced dependency on Israel" in terms of excessive production and transaction costs, as well as barriers to trade with the rest of the world, had resulted in a chronic trade deficit and a "pervasive, lopsided dependence", which accounted for 72 per cent of total Palestinian trade in 2022.

"A lack of a national currency and reliance on the Israeli shekel leave little space for monetary policy while the strong shekel exchange rate undermines the already impaired competitiveness of Palestinian producers in domestic and foreign markets."

With waning donor support, the capacity of the Palestinian economy to bounce back from shocks has also suffered.

"Foreign aid had helped the territory to manage the impact of occupation in the past. However, in 2022, the Palestinian government received just $250 million in donor budget support and $300 million for development projects," Unctad said.

"This is a steep decline from a total $2 billion, or 27 per cent of GDP in 2008, to less than 3 per cent of GDP in 2022."

Israel last week warned people to evacuate the northern part of Gaza and move towards the south as it prepares for a ground invasion of the territory.

Palestine Economy 'Will Take Years' to Bounce Back from Devastation Caused by Gaza War_2

More than 5,700 Palestinians, mainly civilians, have been killed so far in Gaza during Israeli bombardments in retaliation for the Hamas attacks on October 7.

Israeli Prime Minister Benjamin Netanyahu has already spoken of a long war as his troops gather at the border with Gaza.

The EIU expects the Israeli military campaign to last several months and said continued fighting would further damage the enclave's infrastructure and harm its economy.

"It is too early to think about rebuilding Gaza, which will require massive international investment and long-term commitment not previously secured," Mr. Thaker said.

"Israel, for its part, is determined to sever itself from the strip and establish a new security arrangement. After the war, Israel will no longer provide Gaza with electricity and water, Gazan workers will likely not be allowed to work in Israel and a new agreement on trade entering and exiting the shared borders with Israel will be reassessed."

Source: The National News

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Damon

Economic

Bond

The interest rates on mortgages, credit cards and business loans have shot up in recent months, even as the Federal Reserve has left its key rate unchanged since July. The rapid rise has startled investors and put policymakers in a tough spot.

The focal point has been on the 10-year U.S. Treasury yield, which underpins many other borrowing costs. The 10-year yield has risen a full percentage point in less than three months, briefly pushing above 5 percent for the first time since 2007.

This sharp and unusually large increase, alongside others, has sent shock waves through financial markets, leaving investors puzzled over how long rates can remain at such high levels "before things start to break in a meaningful way," said Subadra Rajappa, head of U.S. rates strategy at Société Générale.

So what's going on?

Strong growth and stubborn inflation

Initially, when the Fed first began to fight inflation, it was short-term market rates — like the yield on two-year notes — that rose sharply. Those increases closely tracked the increases in the Fed's overnight lending rate, which rose from near zero to above 5 percent in about 18 months.

Longer-term rates, like the 10- and 30-year Treasury yields, were less moved because they are influenced by factors that have more to do with the long-term outlook for the economy.

One of the most surprising outcomes of the Fed's rate-rising campaign, which is intended to rein in inflation by slowing economic growth, has been the resilience of the economy. While shorter-dated rates are linked mostly to what is happening in the economy right now, longer-dated rates take greater account of perceptions of how the economy is likely to perform in the future, and those have been changing.

From June through August, the changes in the 10-year yield mirror changes in Citigroup's economic surprise index, which measures how much forecasts for economic data vary from the actual numbers when they come out. Lately that index has been showing the economic data has consistently been stronger than expected, and as the outlook for growth has improved, long-term, market-based interest rates like the 10-year yield have risen.

A 'higher for longer' rate path

Better-than-expected jobs figures and consumer spending data is welcome news for the economy, but it makes the Fed's role of slowing inflation trickier. So far, growth has held up as inflation has moderated.

But the resilience of the economy has also meant that price gains haven't cooled as quickly as the Fed — or investors — had hoped. Bringing inflation fully under control may require interest rates to stay "higher for longer," which has recently become a Wall Street mantra.

At the end of June, investors put a roughly 66 percent chance that the Fed's policy rate would end next year at least 1.25 percentage points below where it is now, according to the CME FedWatch. That probability has since fallen to around 10 percent. This growing sense that rates won't come down very soon has helped prop up the 10-year Treasury yield.

Deficits, demand and the "term premium"

Usually, investors demand more — that is, a higher yield — to lend to the government for a longer period, to account for the risk of what might happen while their money is tied up. This extra return, in theory, is called the "term premium."

In reality, the term premium has become a kind of catchall for the portion of yield that is left over after more easily measurable parts like growth and inflation are accounted for.

Although the term premium is hard to measure, the consensus is that it has been rising for a few reasons — and that's pushing overall yields higher, too.

A large and growing federal budget deficit means that the government needs to borrow more to finance its spending. It could, however, be a challenge to find lenders, who may want to sit out the bond market volatility. As bond yields rise, prices fall. The most recently issued 10-year Treasury note from mid-August has already slumped nearly 10 percent in value since it was bought by investors.

"Until it is very clear that the Fed is finished raising interest rates, some investors are going to be less willing to buy," said Sophia Drossos, an economist and strategist at Point72.

Some of the largest foreign holders of Treasuries have already begun to pull back. For the six months through August, China, the second-largest foreign creditor to the United States, sold more than $45 billion of its Treasury holdings, according to official data.

And the Fed, which owns a large amount of U.S. government debt that it has bought to support markets during bouts of turmoil, has begun to shrink the size of its balance sheet, reducing demand for Treasuries just as the government needs to borrow even more.

As a result, the Treasury Department needs to offer a greater incentive to lenders, and that means higher interest rates.

What's the impact?

The ramifications go beyond the bond market. The rise in yields is being passed through to companies, home buyers and others — and investors are worried that those borrowers could be squeezed.

Investors are parsing earnings reports for the latest read on how companies are coping with higher interest rates. Analysts at Goldman Sachs noted at the start of the week that investors have homed in on companies better prepared to weather any coming storm, avoiding companies "that are most vulnerable" to increased borrowing costs.

The rise in rates is weighing on stocks. As Treasury yields rose again on Tuesday, the S&P 500 slipped 1.4 percent. The index has lost about 9 percent since its peak at the end of July, a drop that coincides with the run-up in yields.

Source: The New York Times

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Economic

Bond

Forex

Will US GDP data add more fuel to the dollar's engines?

The US dollar extended its gains as US Treasury yields rebounded, with the 10-year benchmark rate resuming a move towards the psychological zone of 5.0%, briefly breached on Monday.

Yet, Fed funds futures point to a virtually unchanged implied rate path, with a 40% probability for one last 25bps hike by January and around 75bps worth of rate cuts for next year. This means that there is room for upside adjustment should upcoming data corroborate the view that the US economy is faring well, which could add further fuel to the dollar's engines and perhaps propel the 10-year yield above 5.0%. Should this happen, the next territory that could tempt investors to jump into the bond market may be at around 5.3%, a zone that halted further advances in yields back in June 2006 and June 2007.

Today, dollar traders may keep their gaze locked on the US GDP data for Q3. Expectations are for the world's largest economy to have enjoyed double the growth rate it posted in Q2, with the risk perhaps tilted to the upside as the Atlanta Fed GDPNow model estimates an even higher growth rate than the official forecast of 4.3%.

To intervene or not to intervene?

The dollar pair that attracted the most attention was dollar/yen, which forcefully pierced through the psychological 150 zone yesterday, and with no interruption by Japanese authorities, it continues marching higher today, trading at around 150.60.

Nonetheless, that doesn't mean intervention is not likely anymore. Perhaps officials are just considering a higher level at which they could step in. Indeed, earlier today, Japanese Finance Minister Suzuki warned against selling the yen, adding that they are watching market moves with a sense of urgency.

A positive reaction to a better-than-expected US GDP today could prove to be the intervention trigger, but with the BoJ maintaining a lid on Japanese government bond (JGB) yields and the rally in US Treasury yields showing no signs of abating, the pair may be destined to resume its prevailing uptrend at some point, even if Japanese officials act.

For the yen to stage a noteworthy and sustained recovery, the BoJ may need to alter its ultra-loose monetary policy soon. According to sources, officials have already discussed the possibility of a further yield cap hike.

ECB takes the central bank torch

Besides the US GDP data, there is also an ECB meeting on today's agenda. When they last met, ECB officials raised interest rates by 25bps, but they signaled that this was probably the last hike in this tightening crusade.

Since then, several officials have argued that inflation could return to their 2% objective even without any additional hikes, while economic data continues to point to a wounded euro area economy. This convinced market participants no more rate increases will be delivered and allowed them to price in around 65bps worth of cuts for next year.

Therefore, the attention will fall on clues and hints on whether policymakers are indeed considering the reduction of interest rates at some point next year, with anything validating this notion having the potential to further hurt the euro.

The Bank of Canada announced its own decision yesterday, refraining from pushing the hike button and forecasting weak growth, although it kept the door open to more hikes if deemed necessary. The loonie traded on the back foot against its US counterpart, perhaps as its traders continued seeing a very slim probability for another increase.

Alphabet's cloud earnings miss drags Wall Street lower

Wall Street tumbled yesterday, with the tech-heavy Nasdaq losing more than 2% after Alphabet reported disappointing cloud services revenue, even as rival Microsoft's Azure took off. After Wednesday's closing bell, Meta Platforms beat Wall Street's high expectations, but its stock fell after the company warned of weakening advertising demand. This could result in a lower market open today. Amazon will take its turn in reporting results after today's close. Dollar Climbs Above 150 Yen as Treasury Yields Rebound_2

Dollar Climbs Above 150 Yen as Treasury Yields Rebound_2

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ING

Commodity

Energy

Energy: EIA reports inventory gain for the week

ICE Brent has been trading softer this morning after settling above US$90/bbl yesterday. The uncertainty around the Israel-Hamas conflict continues to be the major driving force behind the volatile crude oil prices currently. The sell-off in the broader financial market also appears to be weighing on crude oil prices today.

Weekly inventory numbers from the EIA were soft, with crude oil stocks rising last week. Commercial crude oil inventories increased by 1.4MMbbls over the week, driven by firm imports, slow exports, and softer domestic demand. Earlier, API reported an inventory withdrawal of 2.7MMbbls while the market expected withdrawals of around 0.5MMbbls. Meanwhile, the refinery operating rates dropped further to 85.6% last week compared to 86.1% over the preceding week; refinery utilisation has now dropped to its lowest level since mid-January. Distillate inventories dropped by 1.7MMbbls over the week due to lower supplies while gasoline inventories increased marginally by 0.2MMbbls to 223.5MMbbls.

Metals: Downside revision in copper production guidance

Southern Copper has lowered its production guidance to 918kt of copper this year and 947kt for next year compared to its earlier target of 932kt for the current year and around 1mt for next year. The downside revision is mainly due to operational issues faced in Peru and Mexico. Earlier, other producers including Teck and Anglo-American also revised down their production guidance. Meanwhile, protests against First Quantum's Cobre Panama mine have started in Panama after the government approved a long-term contract for the mine. The protests have not impacted copper supplies yet; however, this reflects the operational challenges for the mine.

The LME aluminium forward curve has been tightening this month on improving demand expectations from China as Beijing focuses on stimulus measures to support the economy. The LME aluminium cash-3M spread tightened to US$16/t of contango currently compared to an average contango of US$41/t in September 2023. The gradual decline in LME aluminium inventories and the risk of supply cuts from China during winter months have also helped aluminium spot prices to move higher.

Agriculture: UNICA reports higher cane crush

The latest fortnightly report from UNICA shows that sugar cane crushing in Center-South Brazil increased by 17.6% year-on-year to 32.8mt over the first half of October. The cumulative sugar cane crush for the season increased by 14.5% YoY to 526mt. Meanwhile, sugar production rose 22% YoY to 2.2mt over the first half of October with total sugar output up 24% YoY to 34.9mt in the season so far. Sugar cane allocation for sugar production remains high at 49.4% in the season so far compared to last year's 45.6% at this point in the season. High sugar prices and stronger demand for Brazilian sugar in the global market have helped push mills to allocate more cane towards sugar instead of ethanol.

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