London 15/07/2016 - Premiums for 6063 aluminium extrusion billets have come under further downward pressure in the US and Asia due to high imports while spot demand is moderate.
Conditions in Europe over the last month were more mixed amid currency volatility and uneven consumption across the region. Premiums were stable in Northern Europe while Italy was slightly higher and Spain fell to to a new low.
Billet producers have initiated 2017 annual contract negotiations and some back-to-back deals have been signed. But extruders will generally wait until later in the year before concluding because they are confident that there is ample supply; many believe that premiums could inch lower over the next couple of months.
Premiums for P1020 aluminium ingots were stable this week around the world due to a lack of interest during the typically quieter summer months.
The US Midwest P1020 aluminium premium remains depressed at a five-year low of 6.9-7.25 cents per pound while Japanese rates were $80-90 per tonne on a cost, insurance and freight (CIF) basis and were at $110-125 on a duty-paid basis in Rotterdam.
US PREMIUMS WEIGHED DOWN BY HIGH IMPORT VOLUMES
- The US billet upcharge slipped due to a wave of imports and weak summer spot demand.
- The Midwest delivered billet premium fell to a wide range of 10-11.25 cents per pound delivered over LME cash prices and ingot premiums from 10.75-11.5 cents last month.
- US billet imports from off-shore in the first half were up 16 percent year-on-year at 371,000 tonnes due to higher imports from the Middle East, Latin America, Europe and Asia, according to Harbor Aluminum.
- "There are two markets. There domestic supply that's 10.5 cents, give or take, and there's imports that are offered under 10 cents. The off-shore guys are trying to grab market share" - billet producer said.
- Imports have more than off-set reductions in US production. Bankrupt Noranda closed the last potline of 87,000 tonnes per year at New Madrid, Missouri, in March while Century Aluminum's Mt Holly smelter continues to operate at half of capacity while it seeks a competitive long-term power arrangement.
- On the demand side, US and Canadian producer extrusion shipments totalled 201,000 tonnes in May, a rise of 1.7 percent year-on-year but down 2.4 percent from April. Year-to-date shipments were up 3.3 percent, the Aluminum Association reported.
- "Demand has decelerated... growth is not as constant as it was earlier in the year. We have seen some signs of softness; personally, I think it's a normal adjustment" - North American producer.
- Producers have started meeting with customers about 2017 contracts but talks are in the very early stages. Extruders are in no rush because there is plenty of supply around and premiums could move lower still over the summer. The key date will the American Extruders Council (AEC) meeting in October.
THAI BILLET HITS NEW LOW, JAPAN UNCHANGED
- Premiums for aluminium billet in Thailand have fallen another $10 to $235-245 per tonne CIF over LME prices in July, their lowest on FastMarkets' records.
- Third-quarter MJP contracts have settled at $90-93 per tonne, down 21 percent from $115-117 in the prior quarter. This has pressured billet premiums in Thailand lower accordingly.
- "Demand is flat for this month compared with June [but] the third quarter is a bit better than we expected - that's why rates for billet have not dropped as much as ingot premiums" - Thai consumer.
- "The extrusion market is still fine. We still have some demand - it's not dropping sharply due to building and construction… But of the other industries maybe automotive has maybe been affected. Exports are dropping - they expected to export 370,000 tonnes cars but now they've reduce their target to 310,000 tonnes' - second consumer from Thailand.
- Still, the Southeast Asian markets are under pressure from imports from China, with premiums at very competitive rates especially to Vietnam.
- In Japan, rates were unchanged at $140-150 per tonne. Aluminium ingot port stocks there continue lower, reaching a 20-month low at 316,800 tonnes from 337,200 tonnes at the end of June.
- While the transport industry is perceived to be growing at a decent rate, demand from the construction sector is lagging behind.
NORTH EUROPE STEADY, MARKET TO WATCH AFTER BREXIT
- Standard 6063 aluminium extrusion billet premiums were steady on a delivered basis to the Ruhr region of North Germany at $345-365 per tonne with 30-day payment terms.
- "Demand is stable, Poland continues to be strong and we can see the market is stable in the UK and Germany. The automotive sector in Europe is holding, which is good" - Western producer.
- Market participants are worried about the potential impact on the UK construction sector after the country voted to leave the European Union.
- "The construction sector is taking a hit [after the Brexit] - that has been really struggling. It's very important to the extrusion business - if that sneezes, then we all catch a cold" - consumer source.
- "For August and September it is quite impossible to get additional billets - every time [it is] the same answer: we are sold out. I cannot see any downward pressure for the third quarter as there are no billets available from traditional suppliers" - producer source.
- Orders in Austria increased eight percent at all four extrusion plants in the first half of 2016 over the same period in 2015.
- "Construction business is running well but the transportation sector is booming - a double-digit increase in comparison to 2015" - second consumer in Europe.
NEW OFFERS PUSH SPANISH MARKET TO FRESH LOWS, ITALY LARGELY STABLE
- In Spain, spot premiums for billets have fallen to a new FastMarkets low to $320-340 per tonne DDP with 60-day payment terms from $335-355 last month.
- Emboldened by a continued lack of a buyer for Alcoa's Spanish primary smelting operations, a mass of producer and trader offers have turned Spain into by far the most competitive market in Europe. Low offers are made with the intention of attracting longer-term commitments.
- "Spain is seeing big competition because traders and non-regular primary smelters are trying to increase their presence there" - producer source.
- Premiums in Italy are steadier - most extruders have solid orders for products, which are aided by the low-upcharge environment.
- Premiums in Italy are $340-360 per tonne DDP with 60-day payment terms, up marginally from $340-355 last month.
- Supply remains strong into Italy but market participants noted that warehouse stocks of metal, which had previously capped any rise in premiums, are now dwindling.
- "It seems that the material in warehouse has been consumed and is not excessive any more like it was for the last 12 months" - extruder.
- With third-quarter contracts being traded at spot, heads are turning to the fourth-quarter negotiations that will start after August holidays. Early offers are at $360-375 per tonne but expectations are for concluded numbers to be roughly unchanged.
TURKEY UNCHANGED AT SOFT LEVELS
- Billet premiums in Turkey remain stable at $280-310 per tonne CIF.
- Domestic remelt producers are able to leverage imported ingots with low premiums from Malaysia and Iran to keep rates low.
(Editing by Mark Shaw)