Winter Park, Florida 21/09/2016 - United States aluminium premiums have inched up from a seven-year low but few are expecting a sharp rally because the region remains flush with imports.
The US Midwest premium this week climbed to 5.75-6.25 cents per pound, from 5.25-5.9 cents, amid better third-quarter demand and reluctance among suppliers to discount metal during the mating season.
“There's still plenty of aluminium out there but [the producers] might be holding it a little more tightly. The spreads are better so they can finance. [Also] they want to give the appearance that premiums are rising [heading into the mating season],” a US-based trader said.
Recently stability in London Metal Exchange spreads is one of the primary reasons that the US Midwest premium has poked back above six cents. The benchmark cash-threes was last at $12 per tonne, while the important Dec16-Dec17 was $47.15. Those levels aren’t going to make financiers rich but they are sufficient for cash-and-carry deals.
“There’s not the same pressure to discount. Metals holders can lock up metal for a while. For the next month or two, people will want to make their best case [for 2017],” a supplier said.
Annual contract talks have started. Last year, most contracts were singed on a fixed basis but some fix deal were booked above 10 cents. Terms for 2017 will most certainly drop year-on-year but suppliers are pushing for about a half cent above the current spot levels.
Some talks are happening this week at the Institute of Scrap Recycling Industries (ISRI) roundtable in Chicago, and will continue later this month at the American Extruders Council/Aluminum Association meeting in Washington DC and the Metal Bulletin aluminium conference in Madrid.
DEMAND GRADUALLLY IMPROVING
Several market participants noted that there has been a moderate pick-up in spot demand as consumers undertake some modest restocking.
“The first two weeks of September were really slow because [consumers] were waiting for the market to bottom out. It looks like that has happened, so some people are asking around. Not big volumes but metal is starting to move,” a trade source said.
And some of the broader market data does support a gradual improvement in market conditions. The Aluminum Association's Index of Net New Orders of aluminium mill products for August increased ten percent over the previous month, which is a solid recovery from July when orders decreased 9.9 percent.
Aluminium sheet and plate net shipments by US and Canadian producers totalled 345,000 tonnes during August 2016, a rise of 5.3 percent year-on-year and 11.5 percent over July, the Aluminum Association reported.
STILL OVERSUPPLIED
Imports of aluminium imports of ingot, scrap and mill products into the US and Canada (excluding cross-border trade) in July came down from the 2016 peak but were still high in historical terms, according to Aluminum Association data.
Imports totalled 655 million pounds or 297,000 tonnes in July, down 19 percent from June but up 32.5 percent year-on-year. It is also the third-highest monthly total ever recorded. In the first seven months of 2016, total imports were up 20.5 percent at 4.608 billion pounds (2.1 million tonnes).
“The flows have slowed a little but there’s still a lot of imports offered. And with Japan being so weak, more metal will be diverted this way. So I don’t think [US] premiums will be able to climb much higher,” an aluminium supplier said.
However, with LME aluminium below $1,600 and the Midwest premiums at just 6 cents, several participants suggested that Century Aluminum smelters are likely cash negative and more cuts could be forthcoming.
“We could see cuts at one of the Century plants if prices don’t start moving higher. The production levels aren’t huge but those are the last domestic spot suppliers. So a curtailment would impact the market and could give a brief boost to premiums,” a trader said.
Century is running its Mt Holly primary aluminium smelter in South Carolina at 50 percent of capacity throughout 2017 but its long-term future still depends on a new power deal. The current arrangement has a two-month termination clause.
The company is also reduced output at its 240,000 tonne Hawesville, Kentucky, smelter by 60 percent as a direct reaction to challenging price environment.