Aluminum MMI: Tight Aluminum Supplies Stave Off Further Price Drops For Now

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This month the Aluminum Monthly Metals Index (MMI) decreased, with weakness coming from all the prices tracked globally. The index value dropped back two points to 86, back to February levels after holding at 88 for three months.

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LME aluminum prices occasionally spiked in May. Prices showed some sideways price movement, yet continued to trend down overall. In early June, the closing price hit a new low for the year at $1,773/mt.

Source: MetalMiner analysis of FastMarkets

Source: MetalMiner analysis of FastMarkets

Looking at the past six months on the chart above, it’s a little easier to see that prices recently also dropped below January 2019 levels, signaling further price weakness could be on the horizon should relevant industries continue to slow at major growth engine points.

Aluminum Supply Deficit Forecast for 2019

According to a recent investor presentation prepared by Alcoa, the primary aluminum deficit will be between 1.5 million and 1.9 million metric tons. The Chinese market will remain supplied or slightly in surplus at 0.2 million mt of overage, with the deficit projected for the world ex-China.

Global inventory days continue to trend downward overall. After topping out at 119 days in 2009, they now hold at a projected 59 days of global consumption for the 2019 (down from a 70-day average last year).

Source: MetalMiner analysis of FastMarkets data

In the chart above we can see LME-held aluminum stocks have oscillated just above 1 million metric tons for roughly a year and a half. LME worldwide stocks measured at roughly 1.1 million metric tons in early June. These levels are drastically lower than stocks held between 2009-2015.

Automotive Innovation Continues to Tighten Aluminum Supplies

The automotive pull on aluminum supplies will continue to impact aluminum prices over the longer term. This impact will continue to increase as more automotive companies innovate with the metal and push for lighter overall vehicle weight.

Novelis, the producer of aluminum automotive body sheet for the popular Toyota RAV4 and NIO ES6, recently announced its first aluminum sheet battery enclosure solution, which it calls “a more sustainable mobility solution in battery electric vehicles, a market that is expected to more than triple globally by 2025,” it said in a recent company statement.

An industry chief from Constellium Bowling Green, the company’s automotive unit, cites the automotive market as the biggest growth opportunity for the aluminum industry in years. The company expects demand for automotive aluminum to hit 1.4 million tons annually by 2025.

The company also features aluminum battery enclosures for vehicles and makes crash management systems, side impact beams, decorative trims and emblems in aluminum, according to the company’s website. According to the company balance sheet, revenue from sales of packaging rolled and automotive rolled products increased by 12% in Q1 2019 compared with Q1 2018.

Braidy Industries‘ Atlas Mill, the first greenfield aluminum rolling mill in the U.S. in 37 years, according to the company, will open around 2021. According to its company chief, the next five years will be the best in the past five decades. Russian aluminum giant Rusal plans to take ownership of 40% of the project, but the deal presently faces congressional scrutiny.

On the other hand, some automotive lines may never end up making the shift over to aluminum if presented with other options, given the costs of white body production line conversion.

Nippon Steel, of Japan, understands the business threat and opportunity, responding recently by developing a new lightweight car body of steel with a 30% weight reduction.

In Japan, benchmark aluminum premiums increased to $115-$120 mt for Q3. According to press reports, the 10-14% increase follow tighter supply.

Chinese Aluminum Prices

SHFE aluminum prices continued to maintain upward momentum overall so far this year.

Source: MetalMiner analysis of Fastmarkets

Constrained capacity growth could support prices.

On the other hand, some capacity expansion plans for primary ingot are being reported independently by region, according to press reports. This includes the Guangxi Zhuang Autonomous Region’s plan to boost production of aluminum to 4.8 million metric tons by 2025, from the present annual amount of around 2.25 million metric tons in 2018 and an estimated 2.6 million tons for 2019, according to its Ministry of Industry and Information Technology.

Shortage of scrap material also constrains China’s domestic production due to China’s tightening of its scrap import policy. 

U.S. Aluminum Premiums

The U.S. Midwest Premium finally dropped slightly but still rounded to $0.19/lb in early June.

The higher premium indicates supply shortfalls remain.

As indicated by a recent Reuters report, suppliers may be holding the premium higher to cover the 10% import costs on materials. With Canadian and Mexican tariffs now removed, we might expect some drop in the premium.

Source: MetalMiner data from MetalMiner IndX(™)

However, looking at the chart above, the premium already increased a great deal in the year prior to the implementation of the tariffs, with the premium then sticking at that higher level.

U.S. imports of aluminum totaled $24.3 billion dollars, a drastic increase of 41.7% since 2014. Import growth leveled off after 2017, with domestic production already largely shut down due to poor margins.

What This Means for Industrial Buyers

With industrial metal markets still down, including aluminum, on an uncertain economic outlook, and as the U.S. Midwest Premium remains high, buying organizations need to watch the market carefully.

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Actual Metal Prices and Trends

Chinese aluminum prices dropped in the 1.7% to 3% range. Chinese aluminum scrap dropped 1.7% to $1,868/mt, while the primary cash price dropped 3% to $2,042/mt. Billet and bar prices decreased by 2.5% to $2,113/mt and $2,210/mt, respectively.

European prices showed the largest decrease in the index, with commercial 1050 sheet prices down 4.6% to $2,497/mt, while 5083 plate dropped 4.4% to $2,953/mt.

India’s primary cash price dropped 3.7% to $2.07/kilogram.

Other price drops in the index registered at less than 2%, including the LME primary 3-month aluminum price hitting $1789/mt following last month’s larger drop of 5%.

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