By Kirk Maltais
New York 13/10/2016 - Aluminium produced at Rio Tinto Plc’s smelter in Kitimat, British Columbia, is making its way into the U.S. Midwest, sources within the company confirmed to AMM, possibly reflecting fundamental tightness in North America and price weakness in Japan.
Kitimat’s production is making its way to customers as far into the United States as Kentucky, as well as markets in the mid-Atlantic and Northeast, which are a little tougher for the company to service due to extensive freight costs and the presence of other Rio Tinto smelters in eastern Canada, company sources said Oct. 11.
“It is true, the Midwest is a market for Kitimat units whether the market is tight or not,” a source within the company told AMM.
While regular shipments have been coming into the United States since the smelter came back online last year, the facility produces a number of “swing units” that can go to either the Asian Pacific or domestic U.S. markets, the source said, declining to confirm whether these units were now being sold into the United States.
“The market may be a little tight,” the source said. “It’s a plant that can ship into Asia and the U.S. very easily.”
Kitimat units have been sold into the Midwest due to a lack of openings on the West Coast, other market sources said. However, one source noted that Rio Tinto has plenty of options, so there won’t be “fire sales” heading into the end of 2016.
London-based Rio Tinto invested $3.3 billion into the modernization of the Kitimat smelter last year, updating its technology to make production cleaner and to increase capacity by more than 48 percent to 420,000 tonnes per year.
The Asian Pacific market, where Kitimat’s production was initially targeted, has become a less attractive area to sell metal into, as heavy producer selling and modest demand have driven physical aluminium premiums in Asia lower throughout the year.
Spot premiums for P1020 aluminium ingots have softened by 34 percent so far this year to $70 to $75 per tonne c.i.f. to major Japanese ports.
Japanese premium levels have improved over the past week after reaching as low as $60 to $70 per tonne in September, with market participants reporting that very low offers for large tonnages have dropped off.
Meanwhile, South Korea continues to become a hub for aluminum storage. There are now 263,100 tonnes of aluminum listed on warrant in London Metal Exchange warehouses in South Korea, down slightly from 268,225 tonnes Oct. 6 and representing 21 percent of total on-warrant LME stocks.
Stocks in South Korea have risen steadily this year, with warehouse operators enticing units into rent deals with high incentives and capitalizing on a weak demand picture in the region.
But several market participants in Asia reported that units were moving to the United States from the region to take advantage of higher premiums.
“Stocks in Asia have been canceled and shipped to the U.S., and this has tightened the curve because there are less floating warrants now,” a trader in Europe told FastMarkets.
Meanwhile, the P1020 spot premium rose to 6.75 to 7 cents per pound delivered to the Midwest last week (amm.com, Oct. 6), according to AMM’s latest assessment, up 19.6 percent from 5.5 to 6 cents per pound Sept. 7.
(FastMarkets' Archie Hunter contributed to this report)
This article also appears in American Metal Market as part of its daily nonferrous news coverage (www.amm.com). AMM and FastMarkets are part of the Metal Bulletin Group, a global Price Reporting Agency.