PHYSICALS MONTHLY - US ali billet premiums slide further on high imports, Europe mixed

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Archie Hunterarchie.hunter@fastmarkets.comDeputy Head of Physicals+44 (0) 20 7337 2143

London 14/10/2016 - Aluminium extrusion billet premiums have softened in the US and in Germany over the past month - two of the world's strongest premium markets face increased supply while sellers look to shift tonnages from weaker areas of demand.

Still, the billets market was largely steady ahead of annual or early-2017 delivery discussions that will take place around the world over the next month.

Capacity expansions in Asia and expectations for more cheap shipping rates are likely to rule out significant gains in premiums next year but much will depend on a resurgent construction market, consistent automotive demand and undisturbed supply.

"Next year it depends what happens on the macro - if the sun starts shining, people will buy profiles again," an extruder said.

"I would be surprised to see billet premiums at $400 any time soon," a European trader said.


US PREMIUMS SLIDE TO FRESH LOWS ON CONTINUED IMPORTS

  • The US billet upcharge declined to 9.25-10.25 cents per pound delivered over LME cash prices and ingot premiums from 9.5-10.5 cents last month - this is the lowest level since FastMarkets started pricing Midwest billet premiums in February 2014.
  • "A lot of billets are going to the US because there is no duty and there is demand. And the exports are made by low-cost producers (Russia, Middle East) so offers are attractively low" - European trader.
  • US demand remains solid. Shipments of aluminium extruded products by US and Canadian producers totalled an estimated 463.0 million pounds (210,000 tonnes) during August 2016, a year-on-year rise of 4.3% and up 12.9% from July, according to the Aluminum Association.
  • Remelters feel slightly nervous now that Matalco is producing billet at its new plant in Lordstown, Ohio, several sources suggested. Within two years, its output will rise to 350 million pounds per year. 
  • "That’s a lot of capacity. The imports are a factor but we’re watching what the remelters are going to do [for 2017]. [The extruders] are going to wait a couple more weeks to put pressure on them" - US extruder. 
  • The billet market is in the middle of the annual contract mating season. Some deals have been signed at 9.5-11 cents per pound but progress has been slow because extruders are not concerned about having access to supply. 
  • "We’re a couple weeks behind but I think that in the next 10 days the chickens will come home to roost. No one has asked us to lower our prices yet so we thinking we will get right just under 11 cents [for 2017]" - biller supplier.
  • The US Midwest P1020 premium firmed to 6.5-7 cents per pound delivered from 6.25-6.75 cents last week against a backdrop of solid demand. But supply tightness is easing due to hefty imports after producers shifted exports towards the US while traders moved stocks from Singapore and South Korea to the US.


NORTHERN EUROPEAN PREMIUMS SOFTEN FOR Q4

  • Premiums for aluminium billets softened in northern Europe - some sellers reduced their offers to place tonnages.
  • Spot billet premiums were quoted at $345-360 per tonne duty paid and with 30-day payment terms to North Germany, down $5 from last month.
  • Market participants gathered in Madrid for the Metal Bulletin Aluminium conference in the last week of September, with talk focussed on where premiums would settle for 2017 tonnages.
  • And while some producers are sold out of billet for delivery in the fourth quarter of 2016, other sellers are prepared to take a small hit on premiums to shift volumes, sources said.
  • "There are oodles of metal around it's really no problem to get it," - consumer.
  • Talks over first-quarter supply are still only just starting for most in the European market but some deals have been sealed by those needing to lock in billets, at premiums of $350-360 per tonne.


ITALIAN MARKET FIRM AGAIN; SPAIN, TURKEY STEADY

  • Premiums for billets in Italy firmed marginally due to a slight tightening in supply there.
  • Spot premiums for billets delivered to the Brescia area of Italy with 60-day payment terms were quoted at $340-355 per tonne compared with $335-355 last month and $330-350 in August.
  • Sellers are no longer offering standard quality aluminium billets below $340 per tonne.
  • "We have been in a stable premium environment since the start of the year so we are at the same levels more or less $5-10 per tonne - it's no big deal" - extruder
  • Producers and consumers will look to wrap up negotiations for the first quarter of 2017 during LME Week, with the vast majority of extruders continuing to purchase billet on a quarterly basis rather than committing for full-year fixed contracts.
  • Meanwhile, billets in Spain have continued to trade at $340-350 per tonne delivered with 60-day payment terms.
  • Similarly, Turkey was unchanged at $290-320 per tonne against a backdrop of weak demand in the construction and infrastructure sectors due to continued political instability.
  • Turkish primary producer ETI will look to sell an extra 50,000 tonnes of billets in the domestic market in 2017 to take advantage of 4% import duty that came fully into effect this year. 


ASIA PREMIUMS FLATLINE AHEAD OF ANNUAL CONTRACT TALKS

  • Aluminium extrusion billet premiums in Asia had another steady month, with trade slowing in the build-up to annual contract negotiations.
  • Spot premiums in Japan held at $145-150 per tonne cif to Japan and on top of quarterly imported ingot premiums and LME prices for aluminium.
  • "The Asia billet spot market's been close to dead for a while now; everyone's waiting for producers to drop the first numbers" - trader in Asia.
  • Most aluminium billet supply in Asia is booked on long-term contracts - the market settled in a range of $145-165 per tonne over quarterly cif Japanese quarterly MJP ingot premiums in 2016.
  • Producers will make offers for fixed premium 2017 contracts over the coming month. Many will be in London for LME Week.
  • The market foresees offers at similar levels to this year but with downside pressure on premiums from additional smelting capacity in India, Vietnam and Malaysia.
  • In Thailand, billets remained at $210-225 per tonne cif over LME prices.
  • Construction of the Sino-Thai high-speed railway, an 873-km line connecting Bangkok and nearby ports with Kunming in southern China via Laos, will start in December.

 
(Editing by Mark Shaw)



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