London 20/05/2016 - Premiums for 6063 aluminium extrusion billets across the world have been under pressure this month, with competitive offers reported particularly in Europe while a supply glut continues to bite.
Although holders of metal are less inclined to liquidate while the LME's benchmark cash-threes spread is holding at $11 contango, aluminium ingot and value-added products have been under pressure from increased availability and slow demand from key consuming sectors, particularly construction and extrusion.
But the US bucked the trend - although the premium was unchanged this month, demand from the extrusion sector in particular has been robust.
In the wider market, ingot premiums across the world are down from last month - falling in Europe to $75-85 duty-unpaid basis Rotterdam while in Japan the spot rate continues to move further from the second-quarter benchmark and below $100 per tonne on a cost, insurance and freight (CIF) basis to major Japanese ports (MJP).
PREMIUMS HOLD IN NORTHERN EUROPE DESPITE GOOD AUTOMOTIVE DEMAND
- The European aluminium billet premium was largely stable this month although some large holders of metal are increasingly making competitive below-market offers - particularly in the south - which casts a shadow over the third quarter, traders said.
- Premiums for 6063 aluminium extrusion billets were quoted at $345-365 per tonne on a delivered basis to the Ruhr region of North Germany with 30-day payment terms.
- But demand from the key automotive industry has been very strong. European passenger vehicle registrations continue to grow strongly, rising 9.1 percent to 1,273,733 vehicles in April from the same month of last year. This was the 32nd consecutive month of year-on-year growth. In the first four months of the year, registrations rose 8.5 percent.
- "Demand is very good. The main driver is the automotive sector - the pick-up rate is above 10 percent compared with last year. The automotive sector accounts for around 80 percent of total consumption here" - consumer in Europe.
- But supply issues remain a problem despite a steadily improving forward curve. A build-up of inventories has prompted more competitive offers, particularly for the third quarter, with deals reportedly a similar range to where the market has been for much of second quarter.
- Any nearby increase in the 6063 premium should be capped until a larger drawdown in stocks, traders said.
ITALIAN RATES TEETERING ABOVE RECORD LOWS, COMPETITIVE OFFERS BELOW MARKET
- Premiums in Italy remained close to the lowest on FastMarkets records at $355-350 per tonne on a delivered basis to the Brescia area with 60-day payment terms, although offers have been heard closer to $320-$330 on cash terms.
- An influx of metal from the Balkans, Greece, the Middle East and northern European smelters continues to make the market more competitive for spot and nearby tonnages. Holders of metal are increasingly forced to sell closer to margin while consumers are well aware of the struggles of the value-added aluminium product industry in Europe, sellers said.
- Middle Eastern producers in particular have been offering competitive cargoes alongside some trading houses in Europe, with 6063 premiums holding marginally above record lows of $330-345. Some small spot parcels are trading within this range although the increasingly lower offers may well drag it lower in the coming weeks should the influx of material continue.
- Extrusion demand remains sturdy approaching the end of the second quarter although it is not as strong as it was at the start of the year. Still, consumers expect an improvement later in the year, particularly into the end of the third quarter and the start of the fourth.
- Producers are offering around $350-370 for the third quarter but talks are still in their early stages. If demand improves, this could rise $5-10.
- Elsewhere, Spanish premiums were also stable at the $335-355 range that has prevailed since February.
STRONG US DEMAND COUNTERBALANCED BY HIGH IMPORTS
- The US Midwest billet upcharge was unchanged this month at 11.75-12.5 cents per pound delivered over LME cash prices and ingot premiums - healthy extrusion demand was offset by high import levels.
- "The extruders seem to be pretty busy even if they aren't running at capacity. This isn't a boom year but demand is still good - we're talking 3-4 percent annual [demand growth]. But people bought a lot of metal on their long-term contracts so they aren't in that much of a rush to go into the spot market" - billet producer.
- The billet upcharge has also been capped by an influx in imports, which are attracted by America's higher premiums. Aluminium imports of ingot, scrap and mill products into the US and Canada (excluding cross-border trade) totalled 321,000 tonnes in March, up 10.3 percent year-on-year.
- But end-market demand for aluminium remains strong. The US seasonally adjusted, annualised new light vehicle selling rate (SAAR) for April was 17.4 million while, in the construction market, new building permits rose 3.6 percent to a 1.12-million-unit rate last month.
- The US Midwest P1020 ingot premium was steady this week at 7.75-8.0 cents per pound but June is shaping up to a positive month.
- "The US is the best market in world right now. There are still producers and traders who are long but they aren't discounting and some are even quoting higher numbers. We haven't gotten over 8 cents yet but I think that might happen soon" - primary aluminium producer.
ASIA BILLET PREMIUMS DOWN IN THAILAND, STABLE IN JAPAN
- Thai premiums have dropped to $245-255 per tonne CIF over LME prices from $255-265 last month, with additional tonnages offered to the market.
- Suppliers and trading houses have increased their sales volume although spot demand is largely stable and the economy is sluggish, local sources said.
- "Some suppliers prefer to sell now than later because they are very cautious about the economy in the future" - Thai consumer.
- Cheaper extrusions exported by China have been flooding into the Thai market for a long time, putting pressure on the premium.
- Overall demand is steady. While buying interest from automotive sector continues to recover, it accounts only for a small part of total local consumption.
- "[Demand from] automotive is improving, electronics seems slow and construction is stable - I wouldn't say a 'pick-up'" - second Thai consumer.
- Meanwhile, Japanese extruders remain well covered - domestic consumers typically book most of their annual demand on long-term contracts. The spot market remained at $150-160 CIF over the MJP benchmark.
- Demand from the transport and other sectors is "a little bullish," one trading house said, although demand from construction, which accounts for a significant proportion of total consumption, remains weak.
- "It's not robust [demand] - it's quite sluggish. Olympics-related demand won't start till next year… the rush of demand that we were expecting prior to the new VAT rate hasn't happened because the VAT rate is going to be delayed" - local trading source.
- The Japanese government will reportedly postpone a further increase in the consumption tax rate, according to local reports. It was scheduled to rise to 10 percent in October. Holders of aluminium have been expecting an increase in spot demand ahead of the change - consumers are looking to stock up on metal under the cheaper tax rate.
TURKISH MARKET STEADY, SUPPLY CAPS ANY POTENTIAL INCREASE
- Turkish aluminium billets premiums have held steady in quiet trading conditions. Despite good demand, supply issues are capping any potential advance.
- Market sources quoted premiums at $280-310 per tonne CIF Marmara, unchanged from last month.
(Editing by Mark Shaw)