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Winter Park, Florida 25/08/2016 - Oversupply, oversupply, oversupply - that's been the mantra-like chant from the US aluminium industry explaining the rapid fall in physical premiums.
The Midwest premium this week fell to 6.0-6.5 cents per pound - the lowest since September 2010.
And there's no doubt that the US has been inundated with too much metal over the past nine months. Aluminium imports into the US and Canada (excluding cross-border trade) were at an all-time record of 370,000 tonnes in June, up 62 percent year-on-year. That equates to an annualised total of 4.4 million tonnes.
So, yes, supply is the main problem but that's not the only reason that premiums are falling. Not enough people are talking about the fact that demand has weakened beyond what is seasonally normal.
Some recent data is quite worrisome. The Aluminum Association's index of net new orders of aluminium mill products for July decreased 9.9 percent from the previous month. Orders for flat roll products were down 8.3 percent while orders for extruded products declined 13.6 percent and orders for redraw rod were off 19.4 percent. Compared to July 2015, orders were down 2.5 percent.
Net shipments of aluminium sheet and plate in July by US and Canadian producers were just 308,000 tonnes, off 4.6 percent year-on-year. Compared to the previous month, shipments decreased 6.8 percent, the Aluminum Association reported.
Aluminium bare wire and rod & bar shipments in July were just 42,500 tonnes in July, a drop of 4.6 percent year-on-year and down 9.2 percent month-on-month.
And there is an elephant in the room. Automotive sales are finally starting to level off after six years of explosive growth. Last year, Americans bought 17.5 million vehicles, according to research firm Autodata, which is a 59-percent increase from the tally of 11 million in 2010.
But light vehicle sales fell six percent year-on-year in May. This was mostly due to one less selling weekend; nevertheless, that was still the biggest monthly drop in nearly three, Edmonds.com noted.
More recently, US auto sales rose just 0.7 percent in July to 1.52 million vehicles, Autodata said, but some of the biggest carmakers struggled. Sales slipped three percent at Ford, four percent at General Motors and 1.4 percent at Toyota.
"It's a more competitive market than we've seen in the last five or six years," Mark LaNeve, Ford US sales chief, said earlier this month. "It is an indication of a plateauing market that the major players are going to try to protect market share."
And this is already having a trickle-down impact on the aluminium market. Six months ago, traders and consumers were telling us that demand was "very strong" or even "terrific" but this week multiple sources simply said that demand is simply "decent." In no uncertain terms, there has been a downgrade.
For the past two years, the US has had the highest global premiums because the country's significant demand growth was able to absorb a lot of homeless metal.
Now demand is levelling off but the flood of imports isn't slowing. And this is the reason that the US Midwest premium might slip below 6 cents before Labor Day.
(Editing by Mark Shaw)